Delhi High Court Dismisses Challenge Against Arbitral Award Rejecting Counterclaim For Failure To Raise Timely Objections On Quality Of Goods

Brief Facts:

Unison Hotels Pvt. Ltd. (Petitioner) operates a five-star hotel called 'The Grand' in Vasant Kunj, New Delhi. KNM Chemicals Pvt. Ltd. (Respondent) is in the business of trading various types of chemicals for industrial use. The petitioner used to place orders from time to time for the supply of different chemicals to be used for cleaning air-conditioners, cooling towers, boilers and for treating hard water etc. in order to minimize the damage to its appliances/machinery.

Disputes arose regarding unpaid bills. The respondent claimed that on account of supply of material, a sum of Rs.99.56 lakh was payable by the petitioner to it towards various outstanding bills raised by it.

The conciliation proceedings under the MSMED Act failed. The disputes were referred to Delhi Arbitration Centre (now 'DIAC') under Section 18(3) of the MSMED Act for statutory arbitration.

During the pendency of arbitral proceedings, the petitioner preferred an application under Section 16 of the A&C Act and against its rejection, approached the Court by a writ petition. The respondent was held entitled to claim benefit under the MSMED Act for the bills raised after the date of its registration i.e. from 13.02.2019.

The petitioner filed its statement of claim along with counterclaim for Rs.1.22 crore, reimbursement of Rs.9.49 lakh paid by it and Rs.50 lakh towards damages for loss suffered at the hands of the respondent.

The Arbitral Tribunal noted that the petitioner had not disputed the supplies but only claimed them to be of substandard quality. While taking note of Section 42 of the Sale of Goods Act, 1930, it observed that the acceptance of the goods is deemed to have occurred if the buyer retains the goods without raising objection within a reasonable time. The Arbitral Tribunal had noted that the goods were supplied on 12.06.2019; however the petitioner raised objections for the first time after four and a half months. The Tribunal held that the sampling was not done by the Institute and the test report was based on sample supplied by the petitioner, which diminished the evidentiary value of the report.

Vide the impugned award, the Arbitral Tribunal allowed the respondent's/claimant's claims of Rs.40.70 lakh towards services rendered including interest, plus future interest on the award amount in accordance with Section 16 MSMED Act.

The Petitioner filed the petition under section 34 of the Arbitration & Conciliation Act, 1996 seeking to set aside the impugned award. The Petitioner argued that the Arbitral Tribunal erred in dismissing its counterclaim without proper reasoning.

Observations:

At the outset, the court observed that the scope of interference under Section 34 of the A&C Act and the challenge to an award was confined to it being 'patently illegal' and/or against 'public policy'.

The court noted Section 2 (i) (b) of the MSMED Act, which provides as under:-

“where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier”

The court noted that the Arbitral Tribunal observed that the petitioner ought to have aired its objections with regard to the quality of the goods within 15 days of receipt of the same. As per the admitted case of the parties, the goods were last supplied on 12.06.2019; however, the objections for the first time were put on record after nearly four and a half months.

The court dismissed the petition.

Case Name: Unison Hotels Pvt Ltd v. KNM Chemicals Pvt Ltd

Citation: 2025 LiveLaw (Del) 219

Case Number: O.M.P. (COMM) 53/2025
Date of Judgment: 20.02.2025