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M/s. Shivani Handlooms (WCIS) Ltd. vs. Union of India

First Appeal from Order (Commercial) · 2026:DHC:8026-DBDecided 16 Sept 2026New Delhi Bench
FAO (COMM) 119/2025CNR: DLHC010288072025
Justice C. Hari Shankar · Justice Vinod Kumar

Background

A small-scale blanket manufacturer had a government supply contract with the Ministry of Defence to deliver about 35,897 blankets to multiple consignees. A batch sent to Pune (about 7,660 blankets) was rejected as substandard and taken back by the manufacturer, while it claimed the remaining ~28,237 blankets delivered elsewhere were accepted and paid for only in part. An arbitrator awarded the manufacturer roughly Rs. 48 lakh (unpaid balance plus interest) and rejected the government's counterclaim for damages, but never actually addressed the government's specific claim for liquidated damages arising from the manufacturer's failure to ever replace the rejected Pune consignment as the contract required. A District Judge set aside the whole award on this basis, and the manufacturer appealed.

Decision Breakdown

The High Court agreed that the arbitrator's total silence on the Pune-related damages claim was a serious gap, since the contract clearly obligated the manufacturer to replace any rejected, defective stock, and it was undisputed that no replacement was ever supplied. Because all the supplies (Pune and elsewhere) arose from the very same single contract, the Court held it was not possible to simply keep the "good" parts of the award and discard only the Pune-related portion: courts reviewing arbitration awards can only sever a bad part from a good part in limited situations, and cannot themselves calculate the damages the arbitrator failed to determine. The entire award was therefore correctly set aside, and the appeal was dismissed.

Lesson Learnt

If an arbitrator completely fails to rule on one connected part of a dispute (like a counterclaim for damages tied to the very same contract), the resulting award can be struck down in full: courts will not, and generally cannot, patch the gap themselves by calculating the missing amount.

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