Bombay High Court
Ecgc Limited vs Baco Metallic Industries on 15 October, 2025
2025:BHC-OS:18995
CARBPL.2.2025.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMM. ARBITRATION PETITION NO. 2 OF 2025
ALONG WITH
INTERIM APPLICATION (L) NO. 17316 OF 2023
IN
COMM. ARBITRATION PETITION NO. 2 OF 2025
ECGC Limited ...Petitioner
Versus
Baco Metallic Industries ...Respondent
Mr. Nirman Sharma a/w Mr. Roop Basu and Ms. Heenal
Wadhwa i/b The Law Point for the Petitioner.
Mr. Ankit Lohia a/w Mr. Udit Gupta and Mr. Harsh Kesharia
for the Respondent.
CORAM : SOMASEKHAR SUNDARESAN, J.
RESERVED ON : MARCH 5, 2025.
PRONOUNCED ON : OCTOBER 15, 2025.
JUDGEMENT:
Context and Factual Background:
1. This Petition is a challenge mounted under Section 34 of the
Arbitration and Conciliation Act, 1996 (" the Act") challenging an
arbitral award dated March 28, 2023 ("Impugned Award") on the
premise that the findings in the Impugned Award are contrary to the
Digitally
terms of the contract; contrary to the fundamental principles of
signed by
AARTI
AARTI GAJANAN
GAJANAN PALKAR
PALKAR Date:
2025.10.15
evidence; and contrary to fundamental principles of insurance law.
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2. The Petitioner, ECGC Ltd. ("ECGC") issued a shipment
comprehensive risk policy ("SCR Policy") to the Respondent, Baco
Metallic Industries ("Baco") for the period from October 14, 2016 to
October 13, 2017 ("Policy Period"). In terms of the policy, Baco was to
apply for a "credit limit" approval before making a shipment of leather
footwear manufactured by Baco, to an Italian buyer PM Trade SRL
("Buyer"). Baco effected shipments during the Policy Period. The
Buyer raised disputes over quality of the products supplied. Baco
engaged with the Buyer and provided discounts on the amounts
payable by the Buyer and agreed to pay for the leather that was
supplied by an affiliate of the Buyer for Baco to make shoe products. A
credit collection agency was engaged to pursue recovery of amounts
from the Buyer.
3. Baco lodged an insurance claim on ECGC for Rs. ~75.77
lakhs, which was 90% of a loss of USD 127,904, valued at Rs. ~84.19
lakhs (value of goods exported and not paid for by the Buyer). ECGC
approved a sum of Rs. 16.71 lakhs, which was 90% of the loss assessed
by ECGC at Rs. ~18.57 lakhs (EUR 25,513.44) and stated that this was
being paid as a special case condoning several lapses and deficiencies.
Baco accepted this sum but represented repeatedly against this
assessment. When the third representation for claim amount of Rs.
~45.43 lakhs was being considered, arbitration was invoked. ECGC
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offered a further sum of Rs. ~12.59 lakhs, which was also offered in the
arbitration proceedings.
4. Arbitration proceedings were conducted for a claim amount
of Rs. ~59.05 lakhs (the original claim amount reduced by the amount
actually paid out by ECGC). This was allowed by the Impugned Award,
with interest on the claim amount from the date of the cause of action
until filing of the claim, and also pendente lite at 9.5% per annum.
Post-award interest at the same rate was allowed. Costs in the sum of
Rs. 9.95 lakhs were also allowed.
Contentions of the Parties:
5. I have heard Mr. Nirman Sharma, Learned Advocate on
behalf of ECGC and Mr. Ankit Lohia, Learned Advocate on behalf of
Baco. With their assistance in the form of verbal submissions and
written notes on arguments, I have examined the record. It would be
useful to summarise their contentions.
6. ECGC claimed before the Learned Arbitral Tribunal that the
claim relates to an "excluded risk" because Baco had admitted to
quality issues with the footwear it supplied; and had also pointed to a
set-off. Since the Impugned Award has rejected these grounds, Mr.
Sharma on behalf of ECGC would contend that the Impugned Award is
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liable to be set aside on the premise of being contrary to and beyond the
scope of the contract i.e. the SCR Policy. The Learned Arbitral Tribunal
has pronounced upon the merits of the quality issues, without hearing
the Buyer, and was therefore vulnerable as contrary to the rules of
evidence. The quality issues had been considered behind the back of
the Buyer who was the one who raised the quality issues.
7. Mr. Sharma would rely on decisions of the National
Consumer Dispute Redressal Commission ("NCDRC") in proceedings
where policy holders had approached that forum, to indicate that once
a quality dispute has been raised, the exclusion clause would get
triggered. Insurance policy contracts must be strictly construed, Mr.
Sharma would contend, and submit that the exercise of discretion to
pay despite the contractual framework is the insurer's prerogative and
it is not open to the Learned Arbitral Tribunal to make inroads into
exercise of such discretion.
8. Mr. Lohia on behalf of Baco, would contend that the material
on record would show that Baco had indeed completed all the
shipments contracted with the Buyer and there had been no complaints
from the Buyer, who in fact, engaged in discussions for repeat orders.
When the time to pay came near, quality issues were raised and that too
in relation to shipments worth USD 26,500 out of the total shipments
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of USD 250,660. While Baco claims to have firmly denied the quality
issues raised by the Buyer, to buy peace, Baco agreed to deductions of
USD 45,000 in the current invoice and USD 30,000 for future invoices,
subject to getting future business and making immediate payments.
Despite such offers, the Buyer still defaulted
9. According to Mr. Lohia, the discounts are a commercial call
and the risk of non-payment is what Baco was insured against and
ought to be paid. A debt collection agency was engaged by Baco at
ECGC's request, and inputs from this agency received directly, led to
ECGC seeking clarifications. However, ECGC indeed allowed a part of
the claim and thereafter allowed representations to be made. When
proceedings under Section 11 of the Act were pending, ECGC made a
further offer of Rs. ~12.59 lakhs, Mr. Lohia would submit, and indicate
that this amount is admitted even in the Statement of Defence filed in
the arbitral proceedings. Baco would submit that the deductions were
based primarily on the quality disputes and the payment of dues owed
to the affiliate of the buyer for supply of leather. Baco would contend
that since the additional sum of Rs. ~12.59 lakhs were admitted as
payable, it was clear that ECGC was agreeing to pay a total of Rs.
~32.56 lakhs. The dispute was therefore narrowed down to the
legitimacy of the deductions.
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10. According to Mr. Lohia, ECGC's contention about the
Learned Arbitral Tribunal wrongly deciding upon quality disputes is
untenable since the existence of quality disputes was part of the draft
issues offered by ECGC to the Learned Arbitral Tribunal. Throughout
the proceedings there was no contention that assessment of quality
disputes was outside the scope of consideration by the Learned Arbitral
Tribunal. He would build on it further to contend that once ECGC had
exercised its discretion under the SCR Policy to allow a certain amount,
it was open to the Learned Arbitral Tribunal to examine if ECGC had
conducted itself in accordance with its own interpretation of the SCR
Policy. Mr. Lohia would contend that the affiliate of the Buyer who
supplied the leather has been admittedly treated as a third party and
there was no case for a set-off being inferred from the obligation to pay
the supplier of leather from the proceeds of sale of the footwear to the
Buyer. Therefore, in summary, it is contended that the Learned Arbitral
Tribunal has returned a plausible view which cannot be lightly
disturbed in the premises set up by ECGC.
Analysis and Findings:
11. The core issue that has arisen for consideration is whether
the Impugned Award is contrary to the contract and whether the
Impugned Award is an implausible reading of the SCR Policy.
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Therefore, it would be useful to extract the exemption provisions that
ECGC seeks to invoke:
Failure or refusal on part of the buyer to accept the goods and / or to
pay for the whole or any of it is due to his claim that -
(i) he is justified in withholding such payment or part thereof by
reason of any payment, credit, set-off or counterclaim or that
(ii) he is excused from performing his obligations under the
contract on account of any disputes or allegations relating to quality,
quantity and specifications, delivery schedule etc. of the good
supplied to him unless the insured has obtained a final judgement
enforceable against the buyer from a competent court of law in the
buyer's country, provided that ECGC in its discretion and on being
satisfied that the allegations of dispute raised by the buyer as
aforesaid is not tenable or justified in light of information gathered by
or made available to it, agree in writing to waive this exclusion.
[Emphasis Supplied]
12. At first blush, this provision appears to make a clear case for
ECGC having the discretion to waive the exclusion, but a close reading
of the same would indicate that a plausible view about the exercise of
that discretion is that ECGC has to necessarily be satisfied that the
allegation of quality dispute is not tenable or justified. Without such a
satisfaction, it is plausible to hold, the contract does not even
contemplate the ability of ECGC to waive this exclusion. Therefore, if
ECGC were to have waived the exclusion in part, it is plausible to take a
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view that there is no need to have insisted on a competent court of the
Buyer's jurisdiction to rule on the quality issue. Since the existence of
quality issue was an issue framed in the arbitration proceedings, at that
too at the request of ECGC, it is plausible to hold ECGC had taken a
view that quality issue did not have merit, which is why it ended up
paying Rs. 16.71 lakhs to Baco.
13. Against this backdrop, the provision governing the
commercial risks actually covered by the SCR Policy is also noteworthy:
Failure or refusal on the part of the buyer to accept the goods which
have already been exported from India, where any such failure or
refusal is not excused by and does not arise from or in connection
with any breach of contract or warranty on the part of the insured or
from any other cause within his control provided that the insured
shall, if so required by ECGC, establish to the satisfaction of ECGC
through such means or documents as ECGC may require including
appropriate legal proceedings against the buyer if necessary, that the
said failure or refusal on the part of the buyer was wrongful;
[Emphasis Supplied]
14. Therefore, having agreed to pay Rs. 16.71 lakh, it is plausible
for the Learned Arbitral Tribunal to have taken a view that ECGC did
not truly believe that the quality dispute had merit. ECGC did not
insist on legal proceedings to be initiated or for a pronouncement by a
judicial forum in Italy, to pay Rs. 16.71 lakh, or to further offer Rs. 12.59
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lakh. Therefore, it appears that ECGC was negotiating its way with
Baco, and therefore, the Learned Arbitral Tribunal taking a firm view
on evidence in the matter is not at all, in my opinion, in the realm of an
implausible conclusion.
15. Another plausible view of the provisions extracted above
relate to the set-off contention set up by ECGC and rejected by the
Learned Arbitral Tribunal. The set-off, counterclaim or credit alluded
to, relate to the Buyer refraining from making payment on the ground
of such credit, set-off or counterclaim. The issue is whether it could be
a plausible view that when Baco indicated that the Buyer would need to
pay Baco, for Baco to be able to pay the supplier of the leather (who is
Baco's affiliate), it would follow that there was a set-off by the Buyer
that is discernible.
16. There is nothing to indicate that the Buyer claimed a set-off.
The core issue was the quality dispute raised by the Buyer and whether
the fact pattern fell in the realm of ECGC being satisfied that the quality
issue is not tenable or not justified. This is what fell for consideration
by the Learned Arbitral Tribunal. There was no set-off claimed by the
Buyer. It was not claimed by the Buyer that the Buyer had paid its
affiliate instead of paying Baco. Therefore, the ground of set-off is not
tenable. Merely because Baco indicated that it would be from the cash
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flowing from the Buyer that Baco could pay for the leather, it would not
follow that a set-off was the cause for the non-payment by the Buyer.
There is nothing to show that the affiliate of the Buyer would not
pursue Baco for payments for the leather.
17. It is in this light and in the context of trite law on how the
Section 34 Court must assess the challenge to arbitral awards, that one
must examine the Impugned Award. The Learned Arbitral Tribunal
has held that the deductions by ECGC on the ground of quality disputes
are not tenable and also held, on the examination of evidence, that the
quality issue raised by the Buyer appeared to be an afterthought to
wriggle out of the liability. The issues were framed by the Learned
Arbitral Tribunal in consultation with the parties. The consideration of
the veracity of the quality dispute was an integral part of the arbitral
process with the issues being framed. If ECGC was of the view that
Buyer needed to be summoned for evidence from the Buyer to fall for
consideration, Section 27 of the Act could have been invoked to seek
issuance of witness summons to the Buyer. On the other hand, what
appears from the record is that ECGC examined the material before it
and took a considered view to make a part payment of Rs. 16.71 lakhs,
and when Section 11 proceedings were initiated, ECGC made a further
offer of an additional sum of Rs. 12.59 lakhs. This is a waiver, and
indeed within the discretion of ECGC but the very jurisdictional fact for
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exercise of such discretion to waive was for ECGC to arrive at a view
that the quality dispute was without merit.
18. In that light, it cannot be missed that the Learned Arbitral
Tribunal has closely examined contemporaneous documentary
evidence including correspondence between the parties and noticed
that ECGC's credit sanction had been based on the debt
acknowledgement by the Buyer, and returned a valid and plausible
finding.
19. It is trite law that the arbitrator is the master of the evidence
and is the best judge of the adequacy of the quantity and quality of
evidence. The Learned Arbitral Tribunal has returned plausible
findings on the acceptance of a discount by Baco being under distress
and in the lure of future business, which did not transpire. The
Learned Arbitral Tribunal has also examined the correspondence from
the debt collection agency and found that the agency was indeed
appointed at the recommendation of ECGC.
20. That apart, the correspondence with the agency and the
correspondence between Baco and the Buyer has also be meticulously
examined to return a plausible finding about the quality dispute being
an afterthought. That ECGC exercised its discretion to pay, would
indicate that ECGC's contemporaneous view was consistent with this
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finding, since going by a strict reading of the SCR Policy as canvassed
by ECGC, such discretion could have been exercised only if ECGC were
of the view that the quality dispute was not tenable. The views of the
debt collection agency have also been held by the Learned Arbitral
Tribunal as not contradicting Baco's stance of the quality dispute being
without merit, for it to turn the needle in the Learned Arbitral
Tribunal's mind, in ECGC's favour.
21. Taking a holistic view of the matter, and adopting the
approach of interpreting insurance contracts strictly, it cannot be
missed that unless ECGC was of the view that the quality dispute was
not tenable, it would not have made any payment on the claim. The
payment being made in a purely commercial contract cannot be an ex
gratia payment of which no notice could be taken. Therefore, I am not
satisfied that a case has been made out for intervention under Section
34 of the Act.
Standard of Review:
22. It is now trite law that the Section 34 Court must not lightly
interfere with arbitral awards. The scope of review by the Section 34
Court is also well covered in multiple judgments of the Supreme Court
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including Dyna Technologies1, Associate Builders2, Ssyangyong3,
Konkan Railway4 and OPG Power5. Even implied reasons, if
discernible, may be inferred to support a just and fair outcome arrived
at in arbitral awards. To avoid prolixity, I am not reproducing
copiously from these judgments. Suffice it to say (to extract from just
one of the foregoing), in Dyna Technologies, the Supreme Court held
thus:
"24. There is no dispute that Section 34 of the Arbitration Act limits a
challenge to an award only on the grounds provided therein or as
interpreted by various courts. We need to be cognizant of the fact that
arbitral awards should not be interfered with in a casual and cavalier
manner, unless the court comes to a conclusion that the perversity of
the award goes to the root of the matter without there being a
possibility of alternative interpretation which may sustain the arbitral
award. Section 34 is different in its approach and cannot be equated
with a normal appellate jurisdiction. The mandate under Section 34 is
to respect the finality of the arbitral award and the party autonomy to
get their dispute adjudicated by an alternative forum as provided
under the law. If the courts were to interfere with the arbitral award
in the usual course on factual aspects, then the commercial wisdom
behind opting for alternate dispute resolution would stand frustrated.
25. Moreover, umpteen number of judgments of this Court have
1 Dyna Technologies Private Limited v. Crompton Greaves Ltd - (2019) 20 SCC 1
2 Associate Builders vs. Delhi Development Authority - (2015) 3 SCC 49
3 Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority
of India - (2019) 15 SCC 131
4 Konkan Railways v. Chenab Bridge Project Undertaking - 2023 INSC 742
5 OPG Power vs. Enoxio - (2025) 2 SCC 417
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categorically held that the courts should not interfere with an award
merely because an alternative view on facts and interpretation of
contract exists. The courts need to be cautious and should defer to the
view taken by the Arbitral Tribunal even if the reasoning provided in
the award is implied unless such award portrays perversity
unpardonable under Section 34 of the Arbitration Act."
[Emphasis Supplied]
23. In OPG Power, the Supreme Court explained the scope of
interference with interpretation and construction of a contract
accorded in an arbitral award in the following words:-
"72. An arbitral tribunal must decide in accordance with the terms of
the contract. In a case where an arbitral tribunal passes an award
against the terms of the contract, the award would be patently illegal.
However, an arbitral tribunal has jurisdiction to interpret a contract
having regard to terms and conditions of the contract, conduct of the
parties including correspondences exchanged, circumstances of the
case and pleadings of the parties. If the conclusion of the arbitrator is
based on a possible view of the matter, the Court should not interfere.
But where, on a full reading of the contract, the view of the arbitral
tribunal on the terms of a contract is not a possible view, the award
would be considered perverse and as such amenable to interference."
[Emphasis Supplied]
24. I have applied the aforesaid standard in my assessment of
the Impugned Award. For the reasons set out above, a plausible view
has been returned by the Learned Arbitral Tribunal. For the very same
reasons, it cannot be contended that the view taken in the Impugned
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Award is not even possible. In my opinion, the Learned Arbitral
Tribunal's view is not implausible. The standard of an impossible view
is referred to in OPG Power for holding that an arbitral view is
perverse. .
25. In my opinion, the view taken by the Learned Arbitral
Tribunal is not a view on equity, as contended by Mr. Sharma, but is an
informed view of the factual matrix, returned within the strict confines
of the terms of the contract, for the reasons explained above. The
Learned Arbitral Tribunal has indeed made references to ECGC being
an arm of the State and Baco being a small business, alluding to the
need for ECGC to be reasonable in its exercise of discretion. However,
in my opinion, such grounds are not even necessary to bolster what the
Learned Arbitral Tribunal has otherwise found on interpretation of
evidence. As stated above, even implied reasons found by the Section
34 Court to be discernible, could support the outcome obtaining in an
arbitral award, as declared by the Supreme Court in Dyna
Technologies.
26. Indeed, ECGC's view canvassed before this Court could also
be argued to be a plausible view, but it must be remembered that the
Section 34 Court is not an appellate court. it is not permissible to
substitute one plausible view taken by the Learned Arbitral Tribunal
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with another competing plausible view canvassed by the party
challenging the arbitral award before the Section 34 Court. Therefore,
the reliance on decisions of the NCDRC is of no avail in the assessment
of the challenge to the Impugned Award, since the proposition
canvassed on behalf of ECGC would at best be a competing plausible
view.
27. The principles of the requirement of the insured to
demonstrate utmost good faith or for strict interpretation of insurance
contracts can never be quarrelled with. On assessment of evidence,
ECGC has not made out a case for breach of utmost good faith by Baco,
and indeed as explained above, a strict interpretation would show that
ECGC was in a binary position and could have either taken a view that
the quality dispute was untenable (to honour the claim) or that it was
meritorious (to deny the claim as being entirely excluded). It was not
open to ECGC to bargain its way through the proceedings, offering
different amounts at different stages of the proceedings. The view of the
Learned Arbitral Tribunal on the obligation to pay cannot be faulted.
Conclusion and Directions:
28. Therefore, I am of the view that no interference is called for.
The Petition is dismissed. Interim Applications, if any shall also stand
disposed of accordingly. Deposits, if any, made in this Court shall
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stand released within a period of four weeks from the upload of this
judgement on the website of this Court.
29. All actions required to be taken pursuant to this order shall
be taken upon receipt of a downloaded copy as available on this Court's
website.
[SOMASEKHAR SUNDARESAN, J.]
OCTOBER 15, 2025
Aarti Palkar
