Award That Rejected Lab Reports But Relied on Hearsay Shocks Judicial Conscience: Bombay High Court Quashes Arbitral Decision

“An Arbitrator Cannot Shut the Door on Admitted Evidence and Embrace Hearsay Under the Guise of Justice…. There is no documentary evidence worth considering which would decide this core issue” — The Arbitrator’s own words became the ground for judicial censure, as the Bombay High Court declared the award untenable and contrary to public policy. Bombay High Court decisively intervened in a contentious arbitration dispute between Aakash Packaging and Arenel (Private) Limited, quashing an arbitral award passed on 2nd December, 2019. The Court, presided by Justice R.I. Chagla, ruled that the award, which had rejected key laboratory reports and relied on hearsay evidence, was “in conflict with the public policy of India” and “shocked the conscience of the Court”, warranting its setting aside under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996.

“The Arbitrator Chose Hearsay Over Hard Science”

The Court condemned the Arbitrator’s decision to reject SGS India’s test reports—scientific reports obtained soon after the disputed consignment was shipped—while instead relying on speculative, hearsay-based expert testimony that emerged three years after the event.

As the Court observed: “The learned Arbitrator by failing to consider the Reports of SGS India, and placing reliance upon the Report of the Expert (CW-2) which is based on hearsay evidence, has acted in an arbitrary manner, contrary to justice, which shocks the conscience of this Court.”

Allegations of Defective Packaging and Refund Claims

The dispute arose over the supply of food-grade plastic packaging material by Aakash Packaging to Arenel (P) Ltd., a Zimbabwean biscuit manufacturer. Goods were shipped in two consignments in January and June 2013, under Invoices No. 35 and 53. Shortly thereafter, Arenel alleged that the packaging emitted a strong plastic odour, rendering it unfit for food contact.

Despite SGS India’s laboratory reports—commissioned by both parties—stating that the packaging complied with EU and German safety standards, the arbitral tribunal ruled in favour of Arenel, awarding a refund of over USD 165,000, rejecting Aakash Packaging’s counterclaim for outstanding dues, and concluding that the packaging material was defective.

The Petitioner challenged this award under Section 34, asserting that the decision was fundamentally flawed, arbitrary, and rested on inadmissible evidence.

Was This Award a Travesty of Justice?

At the heart of the Court’s scrutiny were two legal questions:

First, could the Arbitrator ignore admitted and uncontroverted test reports from a reputed laboratory, and instead choose to rely on hearsay evidence from an expert (CW-2) who had no direct knowledge of the consignment?

Second, does such conduct not amount to a breach of natural justice, warranting judicial interference under Section 34(2)(b)(ii) of the Arbitration Act?

The Court held unequivocally: “The learned Arbitrator rejected the most objective and contemporaneous evidence produced by the parties and relied on expert evidence which was not based on personal knowledge. This shocks the conscience of this Court.”

 “Rejecting Admitted Documents While Embracing Speculative Opinions Violates Natural Justice”

The Court found that the SGS India Reports—dated 25th March 2013 and 8th May 2013—were prepared close to the time of shipment, contained no findings of odour, and were even produced by the Respondent itself during the arbitration. These reports were admitted by the Petitioner both as to existence and contents, and were formally marked as Exhibits C-16 and C-17 by the Arbitrator without qualification.

Yet, the Arbitrator claimed: “There is no documentary evidence worth considering which would decide this core issue.”

The Court held this assertion as not only factually incorrect, but legally perverse: “By holding that the SGS India Reports have no evidentiary value, the learned Arbitrator arrived at a finding contrary to admitted facts and record, which shocks the conscience of the Court.”

In contrast, the Arbitrator accepted the testimony of CW-2, an Australian expert who was introduced three years after the shipment and who merely reported what Respondent’s staff allegedly told him about the odour in the packaging. He had no first-hand knowledge and no staff members were examined to corroborate his claims.

The Court observed: “CW-2 has deposed to what he was told by staff members of the Respondent in 2016 about the smell in the packaging material when they received it in 2013… This is ex-facie hearsay evidence.”

Judicial Criticism of the Arbitral Process: “Fair Play and Evidentiary Discipline Were Abandoned”

The Court not only rebuked the abandonment of evidentiary standards, but also pointed out that the Arbitrator shifted the burden of proof onto the Petitioner by faulting it for not cross-examining CW-2 on this hearsay.

The Court clarified: “There was no requirement to cross-examine either CW-1 or CW-2… CW-2’s evidence was apparently in the nature of hearsay.”

Moreover, although the Arbitrator himself had held CW-2’s report to be inadmissible, he later relied upon it—solely because it was annexed to CW-1’s affidavit—leading the Court to conclude that: “The learned Arbitrator has dispensed with the most elementary rules of evidence, natural justice and fair play.”

Award Set Aside: A Case Study in the Boundaries of Arbitral Discretion

The judgment draws upon a series of Supreme Court decisions—Associate Builders v. DDA, Ssangyong Engineering, Dyna Technologies, and Delhi Airport Metro Express—which held that an arbitral award must be set aside if it “shocks the conscience of the Court” or is in conflict with basic notions of justice.

Quoting Associate Builders, the Court reiterated: “An Award can be said to be against justice only when it shocks the conscience of the Court.”

In this case, the arbitral award was held to have crossed that threshold.

Arbitrator’s Findings Defied Both Logic and Law

The Bombay High Court concluded that the award was not only factually unsustainable, but also violative of principles of natural justice, evidentiary law, and statutory mandates under the Arbitration Act. It therefore set aside the award under Section 34(2)(b)(ii).

“The impugned Award is in conflict with public policy of India and is required to be set aside,” declared Justice Chagla.

Deposit Released, Petition Allowed

In light of the judgment, the Petitioner was permitted to withdraw the amount of USD 165,000 deposited with the Court, following a four-week period.

Commercial Arbitration Petition No. 349 of 2020 was allowed, and the impugned award dated 2nd December 2019 was set aside in its entirety.

Date of Decision: 8th September, 2025