Karnataka High Court
The Superintending Engineer Ele ... vs M/S Sharavathy Conductors Private ... on 1 September, 2025
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 1st DAY OF SEPTEMBER, 2025
PRESENT
THE HON'BLE MRS. JUSTICE ANU SIVARAMAN
AND
THE HON'BLE DR. JUSTICE K.MANMADHA RAO
COMMERCIAL APPEAL NO.525 OF 2024
BETWEEN:
THE SUPERINTENDING ENGINEER
ELE. TENDERING AND PROCUREMENT
HUBLI ELECTRICITY SUPPLY
COMPANY LIMITED
HUBLI-580 029
...APPELLANT
(BY SHRI. S. SRIRANGA, SENIOR COUNSEL A/W.
SMT. ASHWINI N. RAVINDRA, ADVOCATE FOR
SMT. SUMANA NAGANAND, ADVOCATE)
AND:
M/s. SHARAVATHY CONDUCTORS
PRIVATE LIMITED
COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT
No.23, BANGALORE CO-OPERATIVE
INDUSTRIAL ESTATE, 6TH MILE
OLD MADRAS ROAD, BENGALURU-560 016
NOW HAVING ITS REGISTERED OFFICE AT
No.4A, KIADB INDUSTRIAL AREA CHOKKAHALLI
HOSAKOTE TALUK
BENGALURU RURAL DISTRICT-562 114
REPRESENTED BY ITS MANAGING DIRECTOR
...RESPONDENT
(BY SMT. LAKSHMI IYENGAR, SENIOR COUNSEL FOR
SRI. M. JAGADEESH FOR CAVEATOR/RESPONDENT)
-
2
THIS COMMERCIAL APPEAL IS FILED UNDER SECTION
13(1-A) OF THE COMMERCIAL COURTS ACT, 2015 READ WITH
SECTION 37 OF THE ARBITRATION AND CONCILIATION ACT,
1996 PRAYING TO (a) CALL FOR RECORDS IN COM.AP.
No.119/2023 ON THE FILE OF LXXXII ADDITIONAL CITY CIVIL
AND SESSIONS JUDGE, BENGALURU (CCH-83) (COMMERCIAL
COURT), AS WELL AS THE ARBITRAL RECORDS WHICH ARE
BEFORE THE SAID COURT AND (b) SET ASIDE THE IMPUGNED
ORDER DATED 31.07.2024 PASSED BY THE LXXXII ADDITIONAL
CITY CIVIL AND SESSIONS JUDGE, BENGALURU (CCH-83),
(COMMERCIAL COURT), ALLOWING COM.AP.119/2023 AND
CONSEQUENTLY, UPHOLD THE ARBITRAL AWARD DATED
24.02.2023 AND ETC.
THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 23.06.2025 AND COMING ON FOR
PRONOUNCEMENT OF JUDGMENT THIS DAY, ANU SIVARAMAN
J., PRONOUNCED THE FOLLOWING:
CORAM: HON'BLE MRS. JUSTICE ANU SIVARAMAN
and
HON'BLE DR. JUSTICE K.MANMADHA RAO
CAV JUDGMENT
(PER: HON'BLE MRS. JUSTICE ANU SIVARAMAN) This Commercial Appeal is filed challenging the judgment dated 31.07.2024 passed by the LXXXII Additional City Civil and Sessions Judge, at Bengaluru (CCH.83) ('Commercial Court' for short) in Commercial Appeal No.119/2023.
2. We have heard Shri. S. Sriranga, learned Senior Counsel along with Smt. Ashwini N. Ravindra, learned counsel as instructed by Smt. Sumana Naganand, learned
-
3 advocate appearing for the appellant and Smt. Lakshmi Iyengar, learned Senior Counsel as instructed by Shri. M. Jagadeesh, learned advocate appearing for the respondent.
3. For the purpose of convenience, the parties are referred to as per their rankings before the Arbitral Tribunal unless otherwise specified.
4. The opposite party, a wholly owned Government Company, invited bids on 07.03.2008 for manufacture and supply of 1000 KMS of Rabbit ACSR conductor. The contract was awarded to the claimant Company, which is registered under the Companies Act, 1956, through a purchase order dated 11.06.2009, which was accepted by the claimant on 15.06.2009. As per the purchase order, the claimant was required to supply 300 KM by June 2009 and 150 KM by July 2009, however the delivery commenced only in August 2009. Payments were arranged by the opposite party upon submission of all documents as required under Clause 4.0 of Schedule A of the purchase order (terms of payment). Subsequently, the claimant issued a letter dated
-
4 17.06.2009, alleging delay in payments and sought interest under the Micro, Small and Medium Enterprises Development Act, 2006 ('MSMED Act' for short). The opposite party denied the claim, stating that the terms of payment under the purchase order did not stipulate any time limit for payment of the bills and hence the claimant was not entitled to interest on delayed payment.
5. The claimant filed an application dated 24.05.2010 before the Micro and Small Enterprises Facilitation Council ('MSEFC' for short) alleging that the opposite party had delayed payment of bills by 200 days and sought interest on the delayed payments amounting to Rs.24,47,892/-. The matter was referred to the Arbitration and Conciliation Centre. The claimant filed a detailed claim statement claiming a sum of Rs.1,54,07,011/- and the opposite party filed its objections and a counter claim of Rs.4,04,717/- for delay in supply of materials as per Clause 11 of the Purchase Order.
-
5
6. Based on the pleadings of the parties, the Arbitrator framed the following issues:-
1. Whether the Claimant proves that either it is a Micro, Small or Medium Enterprise, as enumerated in Section 7(1) of the MSME Act, 2006?
2. Whether the Claimant proves that it is entitled for interest as per Section 16 of the MSME Act, 2006?
3. Whether the Claimant proves that it has submitted all documents stipulated in Clause 4 of Schedule A to Purchase Order required for the Respondent to make payment?
4. Whether Claimant proves that there was delay on the part of the Respondent in making payment towards supply of Rabbit ACSR Conductor?
5. Whether the parties are entitled for interest and if so, what is the rate of interest to be awarded, on what amount and from which date it is payable?
6. Whether Claimant proves that it has not waived its right for delayed payment?
7. Whether Respondent proves that the Claimant is liable to pay penalty for delay in supply of material as per Clause 11 of the Purchase Order dated 11.09.2009?
8. Whether there should be any order as to costs and if so, what is the cost to be awarded and from whom it is recoverable?
-
6
7. On behalf of the claimant, Mr. Kaardam Patel - M.D of the company was examined as PW.1 and Exs.P1 to P.16 were marked. The opposite party did not lead any evidence.
8. The Arbitrator held that the opposite party was required not only to physically deliver the goods but also to comply with all the conditions under clause 4.0 of Schedule A. The claimant had to prove both date of delivery and the date on which the other conditions under clause 4.0 were fulfilled. It was further held that granting interest for delayed payment as per Section 16 of the MSMED Act would arise only if the claimant established that the opposite party failed to make payment within 45 days from the day of acceptance or the day of deemed acceptance of the goods.
9. The Arbitrator observed that it was the duty of PW.1 to produce acceptable evidence of compliance with clause 4.0. In the absence of such proof and in view of the negative findings on issues No.3 and 4, the Arbitrator held that the claimant had failed to prove its entitlement to
-
7 interest under Section 16 of the MSMED Act. Since the claimant did not to prove full compliance with clause 4.0 or delay in payment by the opposite party and in the light of the findings on issues No.1 to 4, 6 and 7, issue No.5 was answered in the negative. Accordingly, the Arbitral Tribunal by award dated 24.02.2023 rejected both the claimant's claim petition and the opposite party's counter claim.
10. Aggrieved by the arbitral award, the claimant filed a petition before the Commercial Court in Com.AP.No.119/2023. The Commercial Court held that the claimant had already submitted the requisite documents and therefore, the Arbitrator's finding that the claimant failed to provide these documents was untenable and the onus to have been on the opposite party to produce the same before the Arbitrator. As per clause 4.0 of the payment terms, which required submission of documents listed in points No.(i) to (vii) for release of payment, the Court noted that since the opposite party had admittedly released 100% of the payments, it implied compliance by the claimant with Clause 4.0. Hence, the Arbitrator's finding placing the onus
-
8 on the claimant was found to be erroneous. The Court further observed that clause 4.0 required submission of documents for the release of 90% payment, which had already been complied with and the arbitrator failed to consider this aspect. The Commercial Court allowed the claimant's challenge and set aside the arbitral award dated 24.02.2023. Aggrieved by the judgment of the Commercial Court, the opposite party has filed the present appeal.
11. The learned senior counsel appearing for the appellant contends that the Commercial Court failed to consider the contentions raised and judgments relied on and without proper application of mind or appreciation of material evidence, erroneously held that the arbitral award is contrary to public policy and patently illegal. It is a settled law that the Arbitral Tribunal being a creature of contract has no inherent power to summon documents. The same is contrary to Section 27 of the Arbitration and Conciliation Act, 1996 ('Arbitration Act' for short) and the finding of the Commercial Court that the Arbitral Tribunal should have summoned the documents is wholly without jurisdiction and
-
9 contrary to Statute. The Commercial Court also erred in shifting the entire burden onto the opposite party, ignoring the fact that payments were made only after the claimant submitted the required documents. The claimant neither pleaded nor produced documents demonstrating compliance with Clause 4.0 before the Arbitral Tribunal. The claim was restricted to Exs.P1 to P15, with no reliance placed on the MSMFC records sent during the proceedings. As such the Arbitral Tribunal rightly concluded that the claimant failed to establish compliance with clause 4.0 and thus failed to prove issue No.3.
12. The Commercial Court overlooked these material facts and wrongly interfered with the award by re- appreciating evidence, which is beyond the limited scope of Section 34 of the Arbitration Act. The findings recorded in the impugned judgment are contrary to the material on record and unsustainable in law and is therefore is liable to be set aside.
-
10
13. In support of his contentions, the learned Senior Counsel has relied on the following citations:-
• Punjab State Civil Supplies Corporation Limited and Another v. Sanman Rice Mills and Others reported in 2024 SCC OnLine SC 2632;
• Union of India, Central Public Works
Department, Bengaluru v. M/s.Warsaw
Engineers & Another reported in ILR 2022 KAR 251; and • Delhi Airport Metro Express (P) Ltd. v. Delhi Metro Rail Corporation Limited reported in (2022) 1 SCC 131.
14. The learned senior counsel appearing for the respondent on the other hand contends that the Commercial Court rightly exercised its jurisdiction under Section 34 of the Arbitration Act as the arbitral award suffers from patent illegality. It is submitted that the allegation regarding non- submission of documents under Clause 4.0 is baseless as no written objection or communication was ever issued by the opposite party, amounting to deemed acceptance of the documents. Since payments were made upon submission of the required documents, compliance with clause 4.0 was implied. The arbitrator had both the power and the
-
11 responsibility to seek clarification or summon records to ensure fair adjudication.
15. It is further submitted that relevant documents, including records from the MSEFC forming the basis for reference under Section 18(3) of the MSMED Act, were placed before the Arbitral Tribunal but were not duly considered. The adverse inference drawn against the claimant is alleged to be perverse and contrary to the principles of natural justice. As per Section 16 of the MSMED Act, the interest is payable on failure to make payment within timeline prescribed under Section 15, and contrary interpretation undermines the statutory scheme.
16. An application under Order XVIII Rule 17 of the Code of Civil Procedure, 1908 was filed to recall PW.1 for further examination which was wrongly rejected by the Arbitrator on the ground that the evidence should be from pleadings and not isolated statements. The award suffers from non-consideration of crucial documents and submissions resulting in patent illegality and that the
-
12 Commercial Court rightly set aside the award. As demonstrated by documents at Exs.P9 to P13, the delay was attributable to the opposite party and not the claimant and that the Commercial Court rightly noted that there was no re-appreciation of evidence but rather a failure by the Arbitrator to consider evidence already on record. The claimant provided justification in the right-hand column of Ex.P16 which was never rebutted by the opposite party and that the Arbitrator selectively relied on the opposite party's assertion in the left-hand column and failed to consider the claimant's explanations in the right-hand column and this unilateral approach violates the principles of fair adjudication and undermines the probative value of unchallenged evidence.
17. In support of her contentions, the learned senior counsel has relied on the following citations:-
• Dr.A. Parthasarathy & Ors vs E.Springs Avenues Pvt. Ltd & Ors reported in 2022 LiveLaw (SC) 199;
• Haryana Tourism Limited v M/s.Kandhari Beverages Ltd reported in 2022 INSC 32; and
-13
• Gayatri Balasamy v M/s. ISG Novasoft Technologies Limited reported in 2025 INSC 605.
18. We have considered the contentions advanced. The only issue which requires the consideration before this Court is with regard to the correctness of award of interest under Sections 15 and 16 of the MSMED Act, which read as under:-
"15. Liability of buyer to make payment.- Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day:
Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.
16. Date from which and rate at which interest is payable.- Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following
-14
the date agreed upon, at three times of the bank rate notified by the Reserve Bank.
19. We notice that the issue with regard to delay in payments to be made to the claimant has been considered as issue No.3 in the award above stated.
20. It is submitted by the learned senior counsel appearing for the appellant that only 15 documents were referred in the claim petition and that it is taking note of the said documents that the Arbitrator had come to the conclusion that no interest is payable by the appellant. In the affidavit filed in lieu of examination-in-chief by the claimant before the Arbitrator on 24.03.2022 specifically 15 documents have been referred to.
21. In cross-examination, the claimant's witness admitted that the entire principal amount had been received on 30.04.2010. It is on considering these aspects that the Tribunal had held as follows:-
"25. In paragraph 10 of Statement of Defence the respondent has specifically averred that the respondent arranged for payments of money on submission of all the documents as enumerated in
-15
clause 4 and that there was no delay in payment as contended by the claimant. The entire clause no.4 in Schedule A is reproduced in paragraph 10 by the respondent. In paragraph 9 of its Statement of Defence, the respondent has drawn the attention of this tribunal to penalty imposed by the respondent in terms of Clause 11 of the purchase order at Ex.P4. Suffice to state that no acceptable material is placed on record by PW.1 with regard to the compliance of the mandatory conditions enumerated in clause 4 of Schedule A appended to the purchase order. Hence, an adverse inference will have to be drawn against the claimant because of the non-production of the materials to prove the compliance of the conditions in Clause No.4. The claimant has not placed any acceptable material to discharge its initial responsibility of having submitted all the documents stipulated in clause 4 of the Schedule A. Hence, the question of respondent committing delay in making payment does not arise."
22. In answer to issue No.2, the Tribunal had found that the parties had entered into an agreement which specifically provided that the full amounts would be payable only on furnishing of the documents by the suppliers/contracts to the consignee division. It was therefore found that the parties had contracted out of the statute and it was for the claimant to have produced the
-
16 evidence with regard to compliance of the conditions as provided in clause 4.0. In the absence of material produced by the claimant, the Tribunal held that the claimant had failed to prove that it is entitled to interest as per Section 16 of the MSMED Act.
23. However, the Commercial Court considered clause 4.0 and came to a conclusion that since admittedly the respondent had released 100% payment to the petitioner, it showed that the petitioner had complied points No.(i) to (vii) of clause 4.0 of the contract between the parties. It was found that the Arbitrator having given a finding that requiring the petitioner to produce the documents and waiving the interest for non-production of the documents amounts to a patent illegality that vitiates the award.
24. We notice that clause 4.0 of the agreement between the parties specifically provided as under:-
"4.0) Terms of payment
(a) HESCOM will arrange payment of 90% value of materials plus full taxes and duties against
-17
presentation of dispatch and other documents as specified below by means of cheque of the Executive Engineer El., of the consignee division or Financial Advisor, HESCOM as the case may be after satisfying the terms & conditions of the order, and after receipt of materials acknowledgement statement from the consignee stores.
For arranging 90% payment, the following documents will have to be furnished by the Supplier/Contractor to the Consignee Division.
(i) Invoice in duplicate, stamped and pre-receipted.
(ii) Delivery Challan duly acknowledged by consignee.
The payment will be arranged against clear acknowledgment duly signed by the Store keeper and Store Officer of the relevant HESCOM, Stores.
(iii) Material Acknowledgment Statement along with Advice transfer (to be furnished by consignee division).
iv) Approved Test Certificate or reference to letter of Superintending Engineer El., (Tendering & Procurement), HESCOM, Hubli approving the test certificate.
(v) Guarantee Certificate.
(vi) For payment of Excise duty the original invoice, (buyers copy) duly authenticated by the Proprietor/Director or the Company Secretary shall be submitted.
vii)The serial numbers of the Invoices which were brought into use by the supplier is to be informed to the Asst. Collector of Central Excise of the Jurisdiction and a Xerox copy to that effect shall be produced.
II) Balance 10% value of the material will be paid after completion of guarantee period."
-
18
25. It was the specific contention of the parties before the Arbitrator that the entire payments had been made. The claim was raised by the respondent herein before the Arbitrator for payment of interest under Sections 15 and 16 of the MSMED Act. The question before the Arbitrator was specifically whether there was delay in making the payment in terms of the contract and whether Section 16 would be applicable. Section 15 which refers to liability of the buyer to make payment provides for making of the payment on or before the date agreed between the parties in writing. In the instant case, the date agreed between the parties is referable to clause 4.0, that is, the date on which the documents as provided in clause 4.0 of the agreement are furnished by the supplier to the Consignee Division of the appellant. The claimant having approached the Arbitrator with the claim petition and having relied on documents which were produced by the claimant in support of the contention that the payment was delayed beyond the time provided under the Contract had the responsibility to substantiate the said contention. The burden therefore was
-
19 on the claimant to show that there was delay on the part of the buyer in making the payment. It is only where the buyer fails to make the payment as required under Section 15 of MSMED Act, that the responsibility for making the payment of interest at the rate specified therein would arise.
26. The purchase order was dated 11.06.2009. It was the specific contention of the appellant that the supply was made that the last consignment was supplied only on 14.10.2009 and the full payment was made on 30.04.2010.
27. As a matter of fact, the award records that PW.1 has deposed that he has to check whether the invoices were duly acknowledged by the respondent. The Arbitrator held that production of duly acknowledged invoices was necessary to know whether the claimant had complied with the conditions enumerated in clause 4.0 of Schedule A. The Commercial Court has considered the findings of the Arbitrator and has held in paragraph No.29 as under:-
"29. As per the clause 4 the terms of the payment it is clear that the document mentioned point (I) to (vii) had to be furnished to the HESCOMS/Respondent for releasing the payment. In this case admittedly the
-20
Respondent had released the 100% payment to the Petitioner, it shows that the petitioner has complied the point no (i) to (vii) of clause 4. So, the Respondent has released the 100% payment to the petitioner. Under such being the case the findings of the learned arbitrator the onus of producing originals on the petitioner is grossly error. Accordingly clause 4 (a) the petitioner has to submit the document to the respondent for consideration of 90% payment, but the learned arbitrator has failed to considered the clause 4 (a) payment of terms. The learned arbitrator has given a findings that, requiring the petitioner to have to produced the documents and waiving the entire case and non production of document gross illegality and error. Therefore, the observation vitiated by a patent illegality."
28. After referring to the decisions on the point, the Court went on to hold as follows:-
"As above discussed the learned arbitrator has failed to consider the Ex.P.5. Ex.P.9 to 13 and Ex.P.16 also not given any findings on these documents. Hence, in view of the principle laid down in the above decisions, the entire findings of the learned arbitrator in respect to the issue No.2 is perverse and illegal."
29. It is a trite law that Section 34 of the Arbitration Act does not provide for interference with an arbitral award merely on the ground that the Court feels that the award is erroneous. To quote a few decisions on the point:-
-21
(i) In Ssangyong Engineering and Constructions Co.
Ltd v. National Highways Authority of India (NHAI) reported in AIR 2019 SC 5041 - An arbitral award may be set aside if it suffers from patent illegality apparent on the face of the award. However, to maintain balance and prevent excessive judicial intervention, Section 34(2A) of the Arbitration Act clarifies that an award shall not be set aside merely for an erroneous application of law or by re-appreciating the evidence.
(ii) In Omaxe Ltd. v. Jaswinder Singh and Another dated:19.07.2023 - In application under Section 34 of the Arbitration Act, the Court is not to act as an Appellate Court and cannot re-appreciate the evidence. Judicial interference is confined strictly to the grounds enumerated under Section 34 of the Arbitration Act. An arbitral award may be set aside only if there is a patent illegality apparent on the face of the award, and such illegality must go to the root of the matter. However, a mere erroneous application of law would not be a
-
22 ground for interference. Re-appreciation of evidence would not be permissible on the ground of patent illegality appearing on the face of the award.
(iii) Further, in Dr. Om Prakash Rawal v. Mr. Justice Amrit Lal Bahri dated: 28.05.1993 - The rule of evidence enshrined in Section 101 of the Evidence Act is based on the well known maxim ei incumbit probatio, qui dicit, non qui negate, which means the burden of proof is on the party who asserts, not on him who denies.
30. However, we find that in the instant case, the claimant had not produced any material before the Arbitrator to show that there was a delay in making the payment in terms of the agreement between the parties. The learned Arbitrator found that the initial burden of proving the factum of delay was not discharged. If that be so, the Arbitrator was well within his powers in holding that the element of delay was not proved by the claimant and that therefore liability could not be cast on the buyer to pay interest as provided under Section 16 of the MSMED Act.
-
23 The power of the Commercial Court being limited, we are of the opinion that the finding given by the Commercial Court that it was for the respondent to produce the documents as to the compliance of the requirements of clause 4.0 by the claimant was completely unwarranted and unsupported. It is not open to the Commercial Court exercising jurisdiction under Section 34 of the Arbitration Act to re-appreciate the evidence or to come to a different conclusion on the evidence available on record unless the award is patently illegal. Further, the finding of the Court that Sections 15 and 16 of MSMED Act provide for payment of interest as soon as supply is made is completely unsupported. Section 15 provides for payment of interest, if the payment is not made by the buyer before the date agreed between the parties and it is only if the payment is not made as agreed between the parties that the question of payment of interest would arise.
31. The power of the Court exercising jurisdiction under Section 34 is limited to considering whether an award is required to be set aside on the specific grounds as
-
24 provided in the Section itself. The Apex Court has clearly held that in an application under Section 34 of the Arbitration Act, the Court is not expected to act as an Appellate Court and to re-appreciate the evidence. The limited scope of interference under Section 34 of the Arbitration Act ought to be borne in mind by the Courts exercising the said power. We are therefore of the opinion that the finding rendered by the Commercial Court that the award of the Arbitrator is contrary to public policy and is vitiated by patent illegality was clearly erroneous and was beyond the power of the Court under Section 34 of the Arbitration Act.
32. In the above view of the matter the appeal is liable to be allowed. Accordingly:-
(i) The appeal is allowed.
(ii) The order dated 31.09.2024 passed by the
LXXXII Additional City Civil and Sessions Judge in Com A.P.No.119/2023 is set aside.
(iii) The award dated 24.02.2023 passed by the Arbitral Tribunal in AC No.22/2021 is upheld.
-
25
All pending interlocutory applications shall stand dismissed.
Sd/-
(ANU SIVARAMAN) JUDGE Sd/-
(DR. K.MANMADHA RAO) JUDGE cp*