Ashok Leyland Limited Vs Fibroplast Marine Private Limited — Arbitration | Madras HC (2025)

Ashok Leyland Limited Vs Fibroplast Marine Private Limited — Arbitration | Madras HC (2025)

What the court decided

AI extract

Outcome

Original Petition partly allowed: the award of Rs.37.73 Crores in respect of the Ministry of Home Affairs Project alone is set aside; all other heads of the award dated 15.03.2023 are confirmed; no costs; connected application (A. No.717 of 2024) closed.

Issue for consideration

Whether the Arbitral Tribunal committed a patent illegality in founding its award on the unexecuted draft Manufacturing Agreement (which carried its own arbitration clause) and in treating the Definitive Agreement, Manufacturing Agreement and Consortium Agreement as interconnected rather than independent contracts. +5 more

Court's answer

The Tribunal's findings that the Definitive Agreement, the draft Manufacturing Agreement and the Consortium Agreement were interconnected with everything flowing from the Definitive Agreement, and that by the parties' conduct and substantial compliance the execution of the Manufacturing Agreement was rendered a mere formality, are plausible findings based on the record; there is no scope for interference under Section 34.

Ratio / Principle

The Tribunal's findings that the prototype stage was crossed and commercial production commenced (boats fault-free at customer trial, customer appreciation correspondence, purchase orders placed after freezing technical specifications, and the Karwar manufacturing unit set up exclusively for the petitioner) are based only on available oral and documentary evidence.

Key takeaways

This Court, hearing a Section 34 petition, does not sit in appeal and cannot re-appreciate the evidence to arrive at a different conclusion, particularly where the Tribunal's findings are plausible and not perverse.ratio¶¶269
The letter of the Technical Director Mr.Charles Clarke related only to Version 2 of the boat, and IIT Madras approved and validated even Version 3 by its report of April 2013 after its July 2012 report on the Carrier boat; the Tribunal rightly appreciated this evidence, refuting the contention that the prototype stage had not been crossed.ratio¶¶221

Detailed headnote1 paragraphs

Madras High Court (P.B. Balaji, J.), 17.02.2025 — Arb.O.P.(Comm.Div.) No.69 of 2024: Section 34, Arbitration and Conciliation Act 1996 challenge by Ashok Leyland Ltd to the arbitral award dated 15.03.2023 granting Fibroplast Marine Pvt Ltd Rs.73,84,93,303.50 with 18% interest under claims 1 & 2, arising from an aborted boat-building joint venture under a Definitive Agreement dated 29.06.2010 (Ex.C9) with an unsigned draft Manufacturing Agreement. HELD: (i) the findings that the three agreements were interconnected, that the parties' conduct and substantial compliance rendered execution of the Manufacturing Agreement a mere formality, and that the prototype stage was crossed and commercial production commenced, are plausible — a Section 34 Court cannot re-appreciate evidence; (ii) reliance on the Cost Accountant's unmarked report without examining him caused no prejudice: the Tribunal is not bound by the CPC/Evidence Act (S.19), may obtain expert opinion at any stage (S.26), and the petitioner had not denied the underlying audited balance sheets — no violation of S.18; (iii) loss of future profits is provable by agreed projections — not a 'no evidence' award, and the Bharat Coking Coal requirement was met through admitted correspondence; (iv) the R&D-reimbursement and lost-profits heads are independent — no double counting notwithstanding Halsbury's expectation/reliance-loss rule; (v) HOWEVER, the Rs.37.73 crores awarded for cancellation of the Ministry of Home Affairs tender is set aside: it is hit by 'no evidence' and contradicts the Tribunal's own categorical finding that there was no material for the re-tender; the head is severable, so setting it aside is not impermissible modification (Project Director NHIA v. M. Hakeem). Petition partly allowed; remaining heads confirmed; interest from date of award judicious; no costs.

Issues for consideration

6 issues framed by the court

AI extract

1.
Whether the Arbitral Tribunal committed a patent illegality in founding its award on the unexecuted draft Manufacturing Agreement (which carried its own arbitration clause) and in treating the Definitive Agreement, Manufacturing Agreement and Consortium Agreement as interconnected rather than independent contracts.¶¶203
The court held
The Tribunal's findings that the Definitive Agreement, the draft Manufacturing Agreement and the Consortium Agreement were interconnected with everything flowing from the Definitive Agreement, and that by the parties' conduct and substantial compliance the execution of the Manufacturing Agreement was rendered a mere formality, are plausible findings based on the record; there is no scope for interference under Section 34.ratio¶¶215
2.
Whether the Arbitral Tribunal erred in finding that the prototype/trial stage had been crossed and commercial production had commenced, ignoring material evidence (Ex.C18, Ex.C24, Ex.C27, Ex.C33) and the claimant's own admissions.¶¶216
The court held
The Tribunal's findings that the prototype stage was crossed and commercial production commenced (boats fault-free at customer trial, customer appreciation correspondence, purchase orders placed after freezing technical specifications, and the Karwar manufacturing unit set up exclusively for the petitioner) are based only on available oral and documentary evidence.ratio¶¶231
3.
Whether the Tribunal's acceptance, at the arguments stage, of the Cost Accountant's certificate/report without examining him or marking it as an exhibit denied the petitioner a fair opportunity to contradict it and breached equal treatment under Section 18 of the Act.¶¶236
The court held
Mere non-marking of the Cost Accountant's report is not improper or illegal, since the Arbitral Tribunal did not make the provisions of the Indian Evidence Act applicable to the evidence adduced before it (procedural order No.1 dated 15.04.2017 required pleadings to be accompanied by relied-upon documents).ratio¶¶241
4.
Whether the award of Rs.23.03 Crores as loss of profits, fixed at 10% of the turnover projections, was made without any evidence and contrary to the Supreme Court's ruling in Bharat Coking Coal that a loss claim must be established.¶¶75
The court held
A claim towards loss of future profits can only be proved by projections; the parties had arrived at projections contemplating a particular number of boats, and the Tribunal rightly fell back on those agreed projections to assess future losses; such findings are neither perverse nor illegal.ratio¶¶257
5.
Whether the claims for reimbursement of Research and Development costs and for loss of profits could be awarded together, or amounted to overlapping/double recovery contrary to the expectation-loss vs reliance-loss rule.¶¶179
The court held
The claim for reimbursement of Research and Development costs/expenses already incurred and the claim for loss of future profits based on the petitioner's projections are totally independent claims, not overlapping or double claims; the passage from Halsbury's Laws of England on expectation loss versus reliance loss does not bar recovery on these facts.ratio¶¶263
6.
Whether the award of Rs.37.73 Crores towards loss from cancellation of the Ministry of Home Affairs tender was sustainable when the Tribunal itself found no material for the cancellation/re-tender and that the petitioner was not at fault.¶¶86
The court held
The award of Rs.37.73 Crores towards cancellation of the MHA contract is unsustainable: the Tribunal itself consistently and categorically found no material for the re-tender and that the petitioner was not at fault, yet awarded the sum merely for delay in supplying the engine — which 'belies logic and reasoning'; the award is clearly hit by 'no evidence'. Being a severable claim specifically dealt with separately, setting it aside does not amount to the impermissible modification of an award under Section 34, in line with Project Director NHIA v. M.Hakeem (while noting a larger Bench is proposed to review that proposition).ratio¶¶285