20 February 2025 Arbitration Law >> Business & Commercial Law  

A petition filed by a prominent five-star hotel, "The Grand," challenging an arbitration award in favor of a chemical supplier, has been dismissed by the court. The dispute of Unison Hotels Pvt. Ltd. v/s KNM Chemicals Pvt. Ltd. centered around claims of substandard chemical supplies and outstanding payments, highlighting the complexities of commercial transactions and the application of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

The hotel, located in Vasant Kunj, had been procuring various industrial chemicals from the respondent for cleaning and maintenance purposes. Disputes arose regarding the quality of the supplied chemicals, leading the respondent to invoke the MSMED Act, claiming status as a micro and small enterprise. Following failed conciliation proceedings, the matter was referred to arbitration at the Delhi International Arbitration Centre (DIAC).

The Arbitral Tribunal (AT) ruled in favor of the respondent, awarding Rs. 40,70,271.17 towards outstanding payments and interest, and further ordering future interest until realization. The hotel's counterclaims, alleging substandard supplies and seeking damages, were rejected.

The hotel challenged the award under Section 34 of the Arbitration & Conciliation Act, 1996, arguing that the AT erred in awarding the sum without considering an advance payment of Rs. 9,49,774, and that the dismissal of its counterclaims was unjustified. The hotel also contested the AT's decision to disregard a test report from Shriram Institute for Industrial Research, which it claimed supported its allegations of substandard supplies.

The court, however, upheld the AT's decision, emphasizing the limited scope of interference under Section 34 of the Arbitration & Conciliation Act. The court noted that the hotel's claims of substandard supplies were not substantiated with timely objections or credible evidence.

Key Points of the Judgment:

• Timely Objections: The court highlighted the importance of raising objections to the quality of goods within a reasonable time, as stipulated under Section 42 of the Sale of Goods Act, 1930, and Section 2 (i) (b) of the MSMED Act. The hotel's objections, raised nearly four and a half months after the last supply, were deemed delayed.
• Evidentiary Standards: The AT's decision to disregard the Shriram Institute test report was upheld due to the sample being provided by the hotel itself, diminishing its evidentiary value. The court also noted the absence of customer complaints or supporting evidence for the hotel's counterclaims.
• Running Account: The court addressed the hotel's claim regarding the alleged unpaid advance, stating that the AT had considered the running account between the parties and appropriately adjusted the outstanding amount.
• MSMED Act Applicability: The court reaffirmed the respondent's entitlement to benefits under the MSMED Act, particularly for bills raised after its registration.

The court concluded that the AT's findings were based on a thorough examination of the evidence and applicable legal provisions. Consequently, the petition was dismissed, reinforcing the principle of minimal judicial interference in arbitral awards.

This case underscores the significance of maintaining meticulous records, adhering to contractual timelines, and ensuring robust evidentiary support in commercial disputes. It also highlights the protections afforded to micro and small enterprises under the MSMED Act.

Sale of Goods Act, 1930  

Section 34, Arbitration and Conciliation Act - 1996