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Delhi District Court
The Handicrafts And Handlooms Exports … vs M/S Shankar Shah Ishar Das Jeweler (P) … on 14 August, 2025
IN THE COURT OF SH. PULASTYA PRAMACHALA
DISTRICT JUDGE, (COMMERCIAL COURT)-01,
PATIALA HOUSE COURT, NEW DELHI
OMP (COMM) No.126/2019
In the matter of: -
The Handicraft & Handlooms Exports
Corporation of India Ltd. (HHEC)
Having office at Jawahar Vyapar Bhawan,
Annexe-1, Tolstoy Marg, New Delhi
110001.
Through its Chief Finance Manager
& Authorized Representative, Sh. Ujjal Datta
...Petitioner
Versus
M/s Shankar Shah Ishar Das Jeweler (P) Ltd.
3B/C, Gandhi Nagar, Jammu-180004 (J&K)
...Respondent
Date of Institution : 15.07.2019
Arguments heard on : 29.07.2025
Decided on : 14.08.2025
Decision : Rejected
JUDGMENT
1. Petitioner i.e.The Handicraft & Handlooms Exports Corporation
of India Ltd., has filed this petition under Section 34 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as
‘the Act’) challenging the arbitral award dated 13.04.2019 as
passed by the Sole Arbitrator, whereby Arbitral Tribunal
proceeded to allow the application of the respondent under
Section 16 of the Act and passed the Award to reject the claim. It
is pleaded that as a consequence of the same, the claims of the
OMP (Comm) No.126/2019 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page No.1 of 15 Patiala House Court, New Delhi
Digitally
signed by
PULASTYA
PULASTYA PRAMACHALA
PRAMACHALA Date:
2025.08.14
17:10:53
+0530
petitioner had not at all been adjudicated on merits and the
arbitral award is inter-alia in violation of Section 34(2) (a) (v)
and Section 34 (2) (b) (ii) and 16 (5) of the Act.
2. In the present case, it has been mentioned in the award that copy
of the award dated 13.04.2019 was received by the petitioner on
13.04.2019. The present petition was filed on 15.07.2019 and the
Court issued the notice of this petition to the opposite
party/respondent.
3. The brief facts of the case are that the petitioner is a Government
of India Company and has been established with the objective to
promote export of Handicrafts and Handloom textile products
and is engaged in the business of import of bullions etc. It is
averred that respondent approached the petitioner for import of
bullion as the petitioner is a designated agency for import of
bullion. It is alleged that respondent assured that he would pay
10% of the value of bullion at the time of booking of each order
and balance on the arrival of bullion. It was agreed by the
respondent that it would pay pre-determined margin of profit on
the landed cost of Bullion (CIP), which includes cost of bullion,
freight, insurance and supplier’s premium excluding custom duty
and sales tax as applicable from time to time. Two agreements
were executed between the parties on 14.10.2004. First
agreement was a short agreement containing general terms and
conditions and second agreement was detailed agreement
containing terms and conditions. It was agreed between the
parties that 10% of the value of bullion would be paid by the
respondent to the claimant at the time of placing the order.
OMP (Comm) No.126/2019 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page No.2 of 15 Patiala House Court, New Delhi
Thereafter, the claimant was to import gold, wherein the
ownership of the goods was to rest with the supplier and the
importer/claimant was to act as an agent of the supplier.
Thereafter, respondent was to take delivery of gold on the basis
of unfixed price. The respondent was to pay provisional price of
the gold along with margin money to the extent of 5-10% of the
provisional price of the gold and had to later adjust the account
on the basis of price fixed by the respondent itself with foreign
suppliers. It is the case of the petitioner that respondent in order
to make the transactions between the claimant & the respondent a
fair and transparent one, offered a cheque of Rs.3,00,00,000/-
dated 30.09.2004 bearing no.678410 drawn on Jammu &
Kashmir Bank towards security money. It is averred that
respondent also assured that the said cheque would be renewed
time to time by the respondent during transactions with the
claimant. Despite repeated requests from the claimant, the
cheque no.678410 dated 30.09.2004 for a sum of Rs.3 Crore had
become stale. It is averred that during the financial year during
1.04.2005 to 16.11.2005, respondent purchased 1144 kg of gold
on consignment basis, for which the respondent had been
remitting provisional price of the gold. The claimant issued
written instruction vide its letter dated 25.04.2005 to its banker
Jammu and Kashmir bank to remit USD 8,10,000/- to M/s AGR
Matthey, Horrie Miller Drive Western Australia 6140 subject to
transfer of Rs.3,54,50,000/- by the respondent in current account
of the claimant. It is averred that the last price fixed by the
respondent was on 10.12.2005 and on 25th April 2005 respondent
OMP (Comm) No.126/2019 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page No.3 of 15 Patiala House Court, New Delhi
promised the claimant to deposit Rs.3,54,50,000/- in the
petitioner’s account for delivery of 57 Kg of Gold. It is averred
that respondent in collusion with petitioner’s bank, deposited
Rs.2,79,00,000/- only and the respondent took the delivery of 57
kg of gold, whereas it was entitled to take only 44 kg of gold,
which caused loss of Rs.75,50,000 to the petitioner. It is averred
that petitioner requested the respondent for payment of remaining
amount, but respondent denied its liability. Thereafter, legal
notice was issued to the respondent and petitioner filed a suit
before Hon’ble Delhi High Court. The said suit was disposed off
as non-maintainable with the directions to initiate the arbitration
proceedings and referred the matter to Arbitration under the aegis
of Indian Council of Arbitration, FICCI. In arbitration
proceedings, on 17.09.2008, respondent preferred an application
under Section 16 of the Act. Initially the respondent contested the
application under Section 16 of the Act, but vide order dated
07.01.2010, ld. Tribunal recorded that parties did not wish to
press this application as any expression of opinion by the
Tribunal on the controversy at that stage might prejudice the case
of either party on merit. Thereafter, arbitral proceedings
proceeded on merits and evidence was led from both sides
between 2010-2018. Thereafter, merely on the request of the
respondent, ld. Arbitral Tribunal proceeded to hear and allow the
application under Section 16 preferred by the respondent.
Thereafter, award came to be published on 13.04.2019.
4. Aggrieved by the said award dated 13.04.2019, present objection
petition has been filed by the petitioner mainly on following
OMP (Comm) No.126/2019 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page No.4 of 15 Patiala House Court, New Delhi
grounds: –
i. That award has been rendered without following the
mandatory procedure prescribed under Section 21, 43(1) and
43(2) of the Act;
ii. Award has been passed contrary to the provisions of Contract
Act;
iii. That the procedure adopted by the Tribunal, apart from being
illegal, was wholly unconscionable and inexplicable.
iv. That the Arbitral Tribunal completely ignored the order dated
21.08.2008 passed by the Hon’ble High Court of Delhi;
v. That the award passed by the Arbitral Tribunal is against the
Public Policy of India and Fundamental Policy of Indian Law;
vi. That the award is perverse and bad in law.
5. Reply to the petition was filed by the respondent, denying the
averments, allegations and contentions made in the petition. It is
averred that the petition is bad in law and liable to dismissed.
6. Respondent also filed written synopsis along with judgments
relied upon by it. Ld. counsels for the parties made their
arguments. I have examined the rival contentions and the record
of arbitration proceedings.
7. Ld. counsel for the petitioner argued that the case of the
petitioner rests upon two agreements both dated 01.12.2004. The
first agreement was a Consignment Agreement containing
general terms and defining various provisions of the contract and
the second agreement is a LC Business Agreement containing
specific clauses including Arbitration clause. Both the
Agreements were integral parts of each other and used
interchangeably. Petitioner relied upon the decision of Hon’ble
OMP (Comm) No.126/2019 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page No.5 of 15 Patiala House Court, New Delhi
Supreme Court in Chloro Controls India (P) Ltd. vs. Severn Trent
Water Purification Inc. (2013) 1 SCC 641. It was argued that the
impugned award is an embarrassment to the judicial process,
since Section 16 application was filed in the year 2009, and was
decided almost after a decade without following the due
procedure. The award passed by the Arbitral Tribunal is against
the Public Policy of India and against the legislative intent of the
Arbitration and Conciliation Act, 1996, which aimed to promote
arbitration as a speedy means to settle commercial disputes. Ld.
Counsel relied upon Oil & Natural Gas Corporation Ltd. v. Saw
Pipes Ltd. (2003) 5 SCC 705. He submitted that there is not a
whisper of justification as to how and why the ‘delay’ was
justified by the arbitral tribunal. Hon’ble Allahabad High Court
in Union of India Through Garrison Engineer AF v. M/s Yauk
Engineers explained the scope of Public Policy of India while
relying on Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd.
(supra). It was argued that all the members of Tribunal were not
present in every proceeding. It was further argued that in Patil
Engineering v. North Eastern Electric Power Corporation, AIR
2020 SC 2488, award was held to have rightly been set aside on
the newly added ground of patent illegality [Section 34(2A)].
The High Court had held the view taken by the Arbitrator to be
so irrational and perverse that no reasonable person would have
arrived at that while interpreting different provisions of the
contract. The High Court had also held, and Supreme Court
approved, that the impugned award resulted in unjust enrichment
of the contractor and huge loss to Government Corporation
OMP (Comm) No.126/2019 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page No.6 of 15 Patiala House Court, New Delhi
which was contrary to the Fundamental Policy of Indian Law.
Hon’ble Madras High Court in Arb. O.P. (Com. Div.) No. 195 of
2021 M/s Sunwin Papers vs. M/s Sivadarshini Papers Pvt. Ltd.
allowed a petition under section 34 of the Arbitration and
Conciliation Act, 1996 wherein a challenge was to an award
passed under section 16 of the Act. Ld. Counsel has also relied
upon following case laws: –
i. Raymond Ltd. vs. Miltex Apparels and Ors. 2025 SCC
OnLine Bom 333;
ii. Reva Electric Car Co. (P) Ltd. vs. Green Mobil, 2012 (2)
SCC 93;
iii. Surender Kumar Singhal vs. Arun Kumar Bhalotia; 2021
SCC OnLine Del 3708;
iv. Scholastic India Pvt. Ltd. vs. Kanta Batra, 2022 SCC Online
Del 2351;
v. McDermott International Inc. vs. Burn Standard Co. Ltd.,
(2006) 11 SCC 181;
vi. Rhiti Sports Management Pvt. Ltd. vs. Power Play Sports
and Events Ltd., 2018 SCC OnLine Del 8678;
vii. Dashin Haryana Bijli Vitran Nigam Ltd. Vs Navigant
Technologies (P) Ltd. (2021)7 SCC 657;
viii. Avdhesh Mittal vs. Deepak Vig. OMP (COMM) No.
271/2023 dated 06.03.2024.
ARGUMENTS OF RESPONDENT
8. Ld. counsel for respondent submitted that petition in hand is
barred by limitation. He submitted that petitioner should have
challenged the order dt. 05.11.2018 u/s 37 of the Act. But
petitioner failed to do so and filed this petition after lapse of 60
days, as per limitation for appeal u/s 37 of the Act. Ld. counsel
OMP (Comm) No.126/2019 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page No.7 of 15 Patiala House Court, New Delhi
submitted that this petition u/s 34 is not maintainable. It was
further argued that even otherwise, there is no merit in this
petition. The Arbitral Tribunal decided the application u/s 16 of
the Act, as per the assessment of the terms and condition of the
agreement between the parties. He argued that reliance upon the
second agreement by the petitioner, is misplaced because same
was not related to subject matter of the dispute. Ld. counsel
submitted that the second agreement was meant for different
transaction and tenure of both the agreements were for different
period. Second agreement lapsed on 31.10.2005. The disputed
transaction took place after 31.05.2005. Therefore, even
otherwise on the basis of second agreement also arbitration
clause was no more in operation.
APPRECIATION OF ARGUMENTS, FACTS & LAW
9. The scope of enquiry under section 34 is restricted to
consideration whether any one of the grounds mentioned in
section 34 exists for setting-aside the award. Section 34 of the
Act reads as under: –
“34. Application for setting aside arbitral award- (1) Recourse to
a court against an arbitral award may be made only by an
application for setting aside such award in accordance with sub-
section (2) and sub- section (3).
(2) An arbitral award may be set aside by the court only if-(a) the
party making the application furnishes proof That-i) a party was
under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which
the parties have subjected it or, failing any indication thereon,
under the law for the time being in force; or
(iii) the party making the application was not given proper notice
OMP (Comm) No.126/2019 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page No.8 of 15 Patiala House Court, New Delhi
of the appointment of an arbitrator or of the arbitral proceedings
or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by
or not falling within the terms of the submission to arbitration, or
it contains decisions on matters beyond the scope of the
submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration
can be separated from those not so submitted, only That part of
the arbitral award which contains decisions on matters not
submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a provision of
this Part from which the parties cannot derogate, or, failing such
agreement, was not in accordance with this Part; or
(b) the court finds That-
(i) the subject-matter of the dispute is not capable of settlement
by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of
India.
Explanation 1 – For the avoidance of any doubt, it is clarified
That an award is in conflict with the public policy of India, only
if,– (i) the making of the award was induced or affected by fraud
or corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian
law; or (iii) it is in conflict with the most basic notions of
morality or justice.
Explanation 2.- For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian
law shall not entail a review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by
the Court, if the Court finds That the award is vitiated by patent
illegality appearing on the face of the award:
OMP (Comm) No.126/2019 (Pulastya Pramachala)
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Page No.9 of 15 Patiala House Court, New Delhi
Provided that an award shall not be set aside merely on the
ground of an erroneous application of the law or by re-
appreciation of evidence.”
10. The general principles are that Arbitrator is a Judge of the choice
of the parties and his decision, unless there is an error apparent
on the face of the award which makes it unsustainable, is not to
be set aside even by the Court, even if the Court of law could
come to a different conclusion on the same facts. The Court
cannot reappraise the evidence and it is not open to the Court to
sit in appeal over the conclusion of the Arbitrator. It is not open
to the Court to set aside a finding of fact arrived at by the
Arbitrator and only grounds on which the award can be set aside
are mentioned in the Arbitration Act. Where the Arbitrator
assigns cogent grounds and sufficient reasons and no error of law
or misconduct is cited, the award will not call for interference by
the Court in exercise of the power vested in it. Where the
Arbitrator is a qualified technical person and expert, who is
competent to make assessment by taking into consideration the
technical aspects of the matter, the Court would generally not
interfere with the award passed by the Arbitrator.
11. Hon’ble Supreme Court in the case of Associate Builders vs.
Delhi Development Authority, (2015) 3 SCC 49 held that the
interference with an arbitral award is permissible only when the
findings of the arbitrator are arbitrary, capricious or perverse or
when conscience of the Court is shocked or when illegality is not
trivial but goes to the root of the matter. It was held that once it is
found that the arbitrator’s approach is neither arbitrary nor
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capricious, no interference is called for on facts. The arbitrator is
ultimately a master of the quantity and quality of evidence while
drawing the arbitral award. Patent illegality must go to the root of
the matter and cannot be of trivial nature.
12. Hon’ble Supreme Court in case of Ssangyong Engineering &
Construction Co. Ltd. vs. National Highways Authority of India,
2019 SCC OnLine SC 677 held that under Section 34 (2A) of the
Act, a decision which is perverse 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.
A finding based on the 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
characterized as perverse. It was held that 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.
13. Hon’ble Supreme Court in the matter of PSA SICAL Terminals
Pvt. Ltd. Vs. Board of Trustees of V.O Chidambranar Port Trust
Tuticorin reported as 2021 SCC OnLine SC 508, reiterated its
view as taken in MMTC Limited Vs. Vedanta Limited reported
as (2019) 4 SCC 163, and held as follows: –
“11. As far as Section 34 is concerned, the position is well-settled
by now that the Court does not sit in appeal over the arbitral
award and may interfere on merits on the limited ground provided
under Section 34(2)(b)(ii) i.e., if the award is against the public
policy of India. As per the legal position clarified through
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District Judge (Commercial Court)-01,
Page No.11 of 15 Patiala House Court, New Delhi
decisions of this Court prior to the amendments to the 1996 Act in
2015, a violation of Indian public policy, in turn, includes a
violation of the fundamental policy of Indian law, a violation of
the interest of India, conflict with justice or morality, and the
existence of patent illegality in the arbitral award. Additionally,
the concept of the “fundamental policy of Indian Law” would
cover compliance with statutes and judicial precedents, adopting
a judicial approach, compliance with the principles of natural
justice, and reasonableness. Furthermore, “patent illegality” itself
has been held to mean contravention of the substantive law of
India, contravention of the 1996 Act, and contravention of the
terms of the contract.
12. It is only if one of these conditions is met that the Court may
interfere with an arbitral award in terms of Section 34(2) (b)(ii),
but such interference does not entail a review of the merits of the
dispute, and is limited to situations where the findings of the
arbitrator are arbitrary, capricious or perverse, or when the
conscience of the Court is shocked, or when the illegality is not
trivial but goes to the root of the matter. An arbitral award may
not be interfered with if the view taken by the arbitrator is a
possible view based on facts.”
14. Coming back to the grounds raised by petitioner herein, first of
all I shall deal with the argument of respondent against
maintainability of this petition, for want of challenge to order on
application u/s 16 of the Act. S. 37 (2) (a) of the Act provides that
appeal shall lie to a Court from an order granting of the arbitral
tribunal accepting the plea referred in sub section (2) or sub
section (3) of section 16. Sub section (2) of section 16 of the Act
provides as under: –
“A plea that the arbitral tribunal does not have jurisdiction shall
be raised not later than the submission of the statement of
defence; however, a party shall not be precluded from raising
such a plea merely because that he has appointed, or participated
in the appointment of, an arbitrator.”
OMP (Comm) No.126/2019 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page No.12 of 15 Patiala House Court, New Delhi
15. It is worth to note here that S. 37 does not provide for an appeal
against order of rejection of plea referred in S.16 (2) of the Act.
Appeal is possible only when such plea is accepted. Meaning
thereby if arbitrator rules that he has no jurisdiction to conduct
arbitration proceedings, the aggrieved party has the remedy to
appeal against such order.
16. In the present case, it admitted fact that petitioner did not
challenge the order dated 05.11.2018, vide which arbitral tribunal
had ruled that arbitration was not maintainable. Issue before this
court is that in absence to any challenge to order u/s 37 of the
Act, can petitioner challenge the legality of that order u/s 34 on
the basis of Award being passed in terms of such order. S. 34 of
the Act in fact does not create any bar by making classification of
the Awards, so as to provide for challenge to any particular class
of the Award. It must be kept in mind that legislature was well
aware of situations arising out of acceptance of a plea taken u/s
16 (2) of the Act. Legislature though provided for a remedy
against such order but did not create a bar against challenge to an
Award based on such order. On acceptance of plea u/s 16 (2) of
the Act, the inevitable conclusion has to be rejection of the claim
and passing Award accordingly. Still, despite providing remedy
u/s 37 of the Act against such order, legislature did not create any
bar against challenge to an Award based on such order. In that
situation, I find that this petition is maintainable u/s 34 of the
Act, against the Award passed in the matter.
17. Next question is that whether order dated 05.11.2018 suffers
from perversity, so as to require interference u/s 34 of the Act?
OMP (Comm) No.126/2019 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page No.13 of 15 Patiala House Court, New Delhi
First attack against that order is based on plea that application u/s
16 could not have been entertained at such belated stage, after
conducting evidence in the matter. The said order shows that this
plea was raised by the petitioner before arbitral tribunal as well.
Arbitral tribunal referred to order dated 07.01.2010 as passed in
that proceedings. Said order well reflects that both the parties to
arbitration i.e. petitioner and respondent herein agreed not to
press for their respective applications, on the grounds that any
expression of opinion of the tribunal could prejudice the case of
either of the parties on merits. If petitioner was party to such
proceedings and plea taken before the tribunal, then it is estopped
from challenging the decision of tribunal for entertaining that
application subsequently. After loosing the game, reminding the
objective behind enactment of arbitration laws being speedy
remedial mechanism, and claim that application should not have
been entertained at belated stage, does not sound fair. Application
was kept in abeyance at the request of respective parties and
petitioner did not raise any objection for keeping this application
in abeyance. Therefore, this objection is found to be frivolous.
18. Another contention raised before tribunal and before this court,
related to reading of two agreements in combined manner.
Arbitral tribunal dealt with this plea also and gave finding that
there was no arbitration clause in the first agreement and both the
agreements had different intentions behind them. In this respect it
is worth to refer to pleading of petitioner itself, wherein it has
mentioned about approaching High Court of Delhi with a suit,
before initiation of arbitration proceedings. There was clause in
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District Judge (Commercial Court)-01,
Page No.14 of 15 Patiala House Court, New Delhi
first agreement in following terms: –
“All disputed arising out of or concerning this agreement are
subject to the jurisdiction of Delhi High Court only.”
19. In the backdrop of aforesaid clause and absence of any
arbitration clause, findings given by the tribunal to say that “In
the agreement, specially the parties have ousted the jurisdiction
of the arbitral process and have specifically mentioned that the
disputes be referred to Civil Court.” cannot be questioned at all.
If one agreement provided for exclusive jurisdiction of Delhi
High Court i.e. a Civil Court, then by no stretch of imagination
one can say that parties intended to read arbitration clause
incorporated in the other agreement, which had no relation with
the subject matter of dispute.
20. Therefore, I do not find any illegality or breach of public policy
in the Award in question, so as to reject the claim on the basis of
order dated 05.11.2018. Accordingly, present petition is found
devoid of any merit and hence, same is rejected.
21. File be consigned to Record Room after due compliance.
Digitally signed by PULASTYA PULASTYA PRAMACHALA PRAMACHALA Date: 2025.08.14 17:11:12 +0530 Pronounced in the (PULASTYA PRAMACHALA) Open Court on this District Judge (Commercial Court)-01, 14 day of August, 2025 th Patiala House Court, New Delhi OMP (Comm) No.126/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page No.15 of 15 Patiala House Court, New Delhi
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