Arbitral award granting ADC claims despite admitted breach of coverage conditions set aside as patently illegal: Delhi high court

Delhi High Court rules arbitral award granting ADC claims illegal due to breach of coverage conditions, emphasizing legal compliance in arbitration.

Corporate Service Plan India Pvt. Ltd. v. Sony India Pvt. Ltd. | O.M.P. (COMM) 410/2023 | Delhi High Court | April 29, 2026

The Delhi High Court has set aside an arbitral award that directed an Accidental Damage Cover service provider to honour claims by Sony India Pvt. Ltd. even after finding that Sony had admitted non-compliance with the mandatory conditions for coverage under the agreement. Justice Avneesh Jhingan held that the award suffered from patent illegality on multiple grounds, including internal contradictions, going beyond the terms of the contract, and reliance on an expert report without resolving objections to it.

Background

Corporate Service Plan India Pvt. Ltd. and Sony India Pvt. Ltd. entered into an Accidental Damage Cover Agreement on June 24, 2013, under which the petitioner was to provide accidental damage cover for laptops sold by Sony. The arrangement was later extended by addendum to cover mobile phones as well. Under the agreement, two conditions were mandatory for any item to qualify for ADC coverage: first, Sony had to pay the premium to the petitioner on a monthly basis, and second, Sony had to share the identification details of the products sold on a fortnightly basis, with a grace period of fifteen days.

Disputes arose over enhancement of the premium amount. The petitioner issued a notice on June 13, 2014 terminating the agreement with immediate effect. Sony communicated to its customers that the ADC programme would cease from July 1, 2014, but insisted that the petitioner honour ADC for all laptops and mobiles sold until June 30, 2014. Sony invoked arbitration and the tribunal was constituted.

The Award

The tribunal held that the termination by the petitioner was illegal for failure to comply with the notice requirement under Clause 6 of the agreement, which required either three months notice for termination without cause, or a fifteen-day cure notice before terminating for breach. Since Sony had accepted termination with effect from June 30, 2014, the agreement was held to subsist until that date.

The tribunal also recorded an uncontested finding that Sony had defaulted in providing identification details and paying the premium within stipulated time, and rejected Sony's contention that the petitioner had waived these conditions. Despite this finding, the tribunal awarded Sony a sum of Rs. 2,16,06,407 for laptops covered under ADC, and a further Rs. 9,75,54,755 for mobile phones, arriving at the latter figure by deducting fifty percent from the amount assessed by the expert appointed to examine the claims, without recording any basis for the fifty percent deduction. The total award was Rs. 12,41,20,902 with simple interest at eight percent per annum from July 1, 2014.

The award was passed after the tribunal appointed an expert to examine over thirty-five thousand transactions. Sony objected to the expert report but the petitioner did not. The tribunal, despite recording that the expert report was objected to on grounds of bias, exceeding the terms of reference, and influence of the petitioner, accepted the report without deciding the objections.

High Court's Analysis

The Court found the award to be internally contradictory. The tribunal had categorically held that Sony was a defaulter in complying with the twin conditions of timely premium payment and furnishing of identification details, and that these conditions were not waived. Yet it proceeded to award ADC claims as if the agreement covered products for which these conditions had not been satisfied. The Court held that the subsistence of the agreement until June 30, 2014 did not automatically mean that all laptops and mobiles sold during that period were covered under ADC. Coverage was separately contingent on compliance with the twin conditions, which the tribunal itself had found to be absent.

On the issue of mobile phones, the Court found that the tribunal had granted a thirty-day grace period for Sony to provide data and pay the premium, which was not provided for in the agreement. The agreement specified different timelines for mobiles and laptops, and there was no contractual basis for importing an additional grace period for mobiles. This was held to amount to rewriting the terms of the contract, which is impermissible under settled law. The Court applied the principle laid down by the Supreme Court in Ssangyong Engineering and Construction Company Limited v. NHAI, which states that an arbitrator who wanders outside the contract and deals with matters not allotted to him commits an error of jurisdiction.

The Court also found the expert report to have been relied upon impermissibly. The tribunal had noted the objections of Sony to the report, including allegations of bias and exceeding the terms of reference, but had not resolved those objections before accepting the report. The tribunal's own finding was that apart from the expert report, Sony had led no evidence to prove its case. The Court held that accepting the report under these circumstances, without adjudicating the objections, rendered the award unsustainable.

On the question of quantification, the Court held that the basis for reducing the expert's assessed figure by fifty percent was simply not recorded. The difficulty in calculation could not be equated with impossibility, and resorting to a percentage deduction without a reasoned basis violated Section 31(3) of the Act, which mandates a reasoned award.

The Court further noted that the sale invoices and repair bills did not indicate the cause of damage, and that in some accidental damage information forms the cause recorded was not consistent with accidental damage as defined under the agreement. The onus was on Sony to prove that the repairs were covered under ADC and not under the regular manufacturer's warranty, which it failed to discharge. This aspect was also not within the scope of reference to the expert.

Order

The Court allowed the petition under Section 34, set aside the award in its entirety, and held that the award suffered from patent illegality and perversity on each of the grounds examined.