Delhi HC sets aside Rs 8.15 crore award to Skipper, finds no evidence Flowmore waived tower prototype test
A Division Bench of Justice Avneesh Jhingan and Justice Shail Jain held that a go-ahead for mass production of stubs and templates was not a waiver of prototype inspection for transmission towers, that the award contradicted itself on when the 10 per cent advance fell due, and that the scrap-sale finding ignored the supplier having called the same goods standard a month earlier.
An arbitral award of Rs 8,15,05,674 in favour of Skipper Limited, upheld by a Single Judge in 2023 and sent back to the Delhi High Court by the Supreme Court after a remand it called unnecessary, has been set aside. A Division Bench of Justice Avneesh Jhingan and Justice Shail Jain held on 28 October 2026 that the sole arbitrator's finding that Flowmore Limited had waived prototype inspection of transmission towers was based on no evidence, that the award's reasoning on the 10 per cent advance payment was self-contradictory, and that the arbitrator ignored vital evidence when accepting that the manufactured goods were customised and had to be sold as scrap. Flowmore's appeal under Section 37 of the Arbitration and Conciliation Act, 1996 was allowed in full.
A Rs 27.72 crore purchase order that lasted five months
The dispute goes back to a transmission line project for Jharkhand Urja Sancharan Nigam Limited. Flowmore invited an offer from Skipper on 20 February 2019 for structural material, Skipper offered on 23 February, and on 2 March 2019 Flowmore placed a purchase order for Rs 27,72,31,560 for the manufacture and supply of fabricated and hot-dip galvanised tower parts, stubs, cleats, MS templates, earthing tower material and fasteners. Clause 16 provided for a 10 per cent advance against an advance bank guarantee of equal value and a proforma invoice, to be furnished during manufacturing clearance; the remaining 90 per cent was to be paid by letter of credit after inspection. Clause 38 said the supplier would start manufacturing only after written manufacturing clearance from the buyer, that only the quantity cleared could be manufactured, and that anything made without clearance would be rejected. Clause 10 reserved the buyer's right to inspect at the point of assembly or delivery and to reject non-conforming goods.
Skipper sought clarifications on drawings, shop drawings, bill of material and manufacturing clearance on 7 March 2019. Flowmore replied the next day that approvals could be obtained directly from JUSNL and that Skipper could send a technical person to Ranchi. On 30 May 2019 Flowmore supplied the drawings and bill of material for the tower structures and fasteners, asked Skipper to arrange a proto inspection, and directed the manufacture and inspection of stubs and templates. On 1 June Flowmore requested proto inspection; Skipper answered that a similar prototype had already been made for the Simplex-JUSNL project and asked for the prototype to be waived. Skipper furnished an advance bank guarantee of Rs 2,34,94,200 on 7 June 2019, but Flowmore never released the corresponding advance.
The waiver request was repeated on 11 June for the stubs and templates; Flowmore asked for documents finally approved and signed by JUSNL. By email of 14 June 2019 Flowmore asked Skipper to raise proto inspection calls for each type of tower, stubs and templates, and put three of the eight lines on hold because JUSNL had not allotted a route through forest area. On 19 June 2019 Flowmore permitted mass production of stubs and templates for five transmission-line locations and asked for an inspection call. Skipper sent revised proforma invoices on 1 and 5 July 2019 for about Rs 1.28 crore and Rs 1.13 crore. When Flowmore sought inspection of the material said to be ready on 22 July, Skipper replied that raw material was lined up for stubs, the tower prototype was under production, and inspection could happen only after receipt of the advance. On 25 July 2019 Flowmore cancelled the purchase order and returned the bank guarantee on 30 July.
From a Section 9 petition to the Supreme Court and back
Skipper moved a petition under Section 9 of the Act and the court appointed a sole arbitrator on 27 January 2020. Skipper claimed Rs 11,68,50,536 towards the principal value of manufactured goods, interest, loss of business opportunity and loss of interest on the bank guarantee. Flowmore counter-claimed Rs 26,45,12,721 for interest charged by JUSNL, liquidated damages and other losses attributed to Skipper's failure to perform. The award of 5 July 2022 gave Skipper Rs 8,15,05,674 with interest at 10 per cent a year from 1 February 2020 until the award and 8 per cent thereafter, and dismissed the counter-claim. Flowmore's petition under Section 34 was dismissed on 2 February 2023.
A Division Bench then set aside that judgment on 29 May 2023 and remanded the matter to the Single Judge. Skipper took that order to the Supreme Court, which on 9 December 2024 held that “there was absolutely no reason for the Division Bench to remand” the Section 34 petition, that all questions discussed could have been decided by the Division Bench itself, and that such remands would defeat the object of the Act. The appeal was restored to its original number, directed to be listed on 10 January 2025, and all questions were left open. Judgment was reserved on 24 September 2026.
Waiver by inference, says Skipper; no evidence at all, says Flowmore
Mr Jayant Mehta and Mr Arvind Nigam, Senior Advocates, with Ms Pratishtha Vij, argued for Flowmore that the arbitrator had ignored the contractual terms and material evidence, and that the award was perverse and patently illegal. Prototype inspection was a prerequisite for mass production; the waiver Skipper sought was never granted; the clearance of 1 June 2019 covered stubs and templates only; no Clause 38 clearance for mass production of towers was ever issued; and Skipper's own email of 23 July 2019 saying the tower prototype was still under production contradicted its claim that the goods had been manufactured. The 10 per cent advance under Clause 16 was conditional on manufacturing clearance, a bank guarantee and a proforma invoice, and the guarantee furnished did not correspond to the limited clearance given, so withholding the advance was no breach. Proforma invoices, production statements and raw-material procurement did not prove that finished goods existed, particularly when none were offered for inspection; the award assumed goods worth Rs 15.13 crore had been manufactured and the deduction for scrap and for nuts and bolts did not cure that defect. Flowmore also relied on Kailash Nath Associates v. DDA, (2015) 4 SCC 136, and Fateh Chand v. Balkishan Das, AIR 1963 SC 1405, to argue that the claim was allowed without proof of actual loss.
Mr Nikhil Nayyar, Senior Advocate, with Mr Saurav Gupta and Ms Sugandha Batra, answered for Skipper that the appeal sought a re-appreciation of evidence beyond the scope of Section 37. The purchase order did not make prototype inspection a condition for manufacture or for the advance; in any event the arbitrator had found from the correspondence of 30 May and 19 June 2019 that Flowmore waived the requirement by granting manufacturing clearance. Skipper had furnished a Rs 2.34 crore guarantee and sought payment, and Flowmore failed to release the advance. The finding that the goods were manufactured rested on production records, procurement documents and contemporaneous evidence, and the Section 9 petition seeking delivery of the manufactured goods supported it. The contract for eight lines had been reduced to five by the email of 14 June 2019. Skipper cited Ramesh Kumar Jain v. Bharat Aluminium Company Ltd., 2025 SCC OnLine SC 2857, for the proposition that an erroneous application of law is not patent illegality, and Prakash Atlanta (JV) v. National Highways Authority of India, 2026 SCC OnLine SC 98, on non-interference with a plausible view.
What the 19 June email actually said
The Bench began with the findings nobody disputed. The arbitrator had held that Flowmore was obliged to prepare and furnish the structural drawings, a point conceded in cross-examination by Flowmore's witness RW-4 Mr Prakash Behra, and that Skipper received the approved drawings only by 30 May 2019, leaving no possibility of supply within the stipulated time. The arbitrator had also held that there was no express condition requiring prototype inspection, but that manufacture and inspection of the prototype was an implied part of the contract to be completed before manufacturing clearance, and that no document showed a categorical waiver. Neither side challenged those findings.
The real controversy was the arbitrator's next step: deducing that Flowmore's email of 19 June 2019, permitting mass production of stubs and templates for five locations and seeking a proforma invoice, amounted to an implied waiver of prototype inspection. The Bench reproduced the emails. On 14 June Flowmore had asked Skipper to raise proto inspection calls for each type of tower, stubs and templates, and separately for the DA, DB, DC and DD tower types. On 19 June Flowmore wrote that Skipper could go ahead with mass production of stubs and templates for five locations and arrange an inspection call, and in a second email of the same day sent its stamp and signature for stubs and templates to start mass production. The language, the Bench held, was clear: the go-ahead was for stubs and templates only, and not for towers. On 1 July 2019 Flowmore was still asking for the status of proto inspection for each type of tower, and on 30 May it had asked Skipper to arrange proto inspection of the tower structures.
Taking Skipper's case at its highest, the 19 June email contained no mention of waiving the inspection call for the towers. The finding of waiver was therefore without any basis and unsupported by evidence. “The conclusion arrived at suffers from patent illegality,” the Bench said, citing Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd., 2024 INSC 292, for the settled position that a finding based on no evidence, or one that ignores vital evidence, is perverse and liable to be set aside under the head of patent illegality. The request for a proforma invoice for five lines did not change this: raising a proforma invoice was one of the steps prescribed by Clause 16 for release of the advance, not proof of manufacturing clearance or of waiver.
An award at odds with itself on the advance
The Bench then turned to the advance. Reading Clauses 1, 10, 16 and 38 together, it agreed with the arbitrator that the advance was to be paid during manufacturing clearance but before manufacturing started, so that manufacture could not have begun without receipt of the advance. The arbitrator had held that the stage for release of the 10 per cent advance had arisen, but that conclusion rested on the finding that Flowmore had granted mass production clearance for stubs, templates and towers and waived proto inspection. There had been no go-ahead for towers and no waiver.
Skipper's own correspondence made matters worse for it. The arbitrator had reproduced Skipper's email of 1 July 2019, in which its Manager (Drawing), Somnath Bhattacharjee, wrote that two types of tower would be released for proto production that day and the remaining two the next day, but had not considered its effect. The email showed that even Skipper did not believe proto inspection of towers had been waived. Skipper's consistent stand was that no proto inspection was due until the advance was paid; the arbitrator had held that mass production could not commence without manufacturing clearance, which in turn had to be preceded by proto inspection and the 10 per cent advance. On that logic the stage of proto inspection would arrive only after the advance, and since no advance was ever paid, there was no occasion to waive the prototype inspection at all. The findings on that point and on waiver were contradictory. Relying on Union of India v. V. Pundarikakshudu and Sons, (2003) 8 SCC 168, the Bench held that an award suffering from contradictory findings is liable to be set aside.
Where the arbitrator was within bounds, and where not
Not every argument succeeded. Flowmore's contentions that the arbitrator had worked from the revised proforma invoice of 24 July 2019 to decide the principal claim, and that the claim was allowed without proof of actual loss as required by Kailash Nath Associates and Fateh Chand, were rejected. The Bench restated the narrow scope of Section 34 and the still narrower scope of Section 37, drawing on Bombay Slum Redevelopment Corpn. (P) Ltd. v. Samir Narain Bhojwani, (2024) 7 SCC 218, Punjab State Civil Supplies Corpn. Ltd. v. Sanman Rice Mills, 2024 SCC OnLine SC 2632, and Larsen Air Conditioning & Refrigeration Co. v. Union of India, (2023) 15 SCC 472: the appellate court cannot undertake an independent assessment of the merits and must only ascertain whether the Section 34 court stayed within its limits. Under Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd., (2019) 7 SCC 236, the quantity and quality of evidence is the arbitrator's exclusive domain.
On that footing the arbitrator's finding that the material was ready with Skipper was a plausible view. It rested on the details of purchase (C-34), the indent for cutting of angles (C-35), the fabrication cards (C-38), the production progress statement, the correspondence on freight charges and Skipper's invoice of 3 July 2019. There could be no re-appreciation of that evidence to arrive at another possible view, and Prakash Atlanta, cited by Skipper, supported that proposition.
The quantification of loss was different. The arbitrator accepted Skipper's case that the goods manufactured were customised for Flowmore and had been sold as scrap to mitigate the loss. But on 1 June 2019, when seeking waiver of proto inspection, Skipper had told Flowmore that the goods being made for it were similar to those supplied in the Simplex-JUSNL project. “The respondent breathed hot and cold simultaneously,” the Bench observed: on one hand the goods were customised and of no use to any other customer, on the other they were the same as those going to another JUSNL project. The arbitrator had failed to consider this vital evidence, and the acceptance of the scrap sale was vitiated by patent illegality. The Bench added that it had no quarrel with Ramesh Kumar Jain, which Skipper relied on; that judgment itself holds that a crucial finding unsupported by evidence, or reached by ignoring vital evidence, may warrant interference, provided the court remembers that no evidence means truly no relevant evidence and not merely weak evidence.
Order
The Division Bench set aside the arbitral award dated 5 July 2022 and allowed FAO(OS) (COMM) 31/2023. The pending applications, CM APPL. 5215/2025 and CM APPL. 25260/2025, were disposed of. The judgment, authored by Justice Avneesh Jhingan for the Bench, was reserved on 24 September 2026 and pronounced on 28 October 2026, and has been marked reportable.