The Bombay High Court (Bombay Bench) partly allowed Hersheys India’s challenge under Section 34 of the Arbitration and Conciliation Act, 1996. It struck down the part of the award directing Hersheys to pay Rs. 75 lakhs to Kanti Beverages for the supposed loss and inconvenience arising from the latter’s belief that their contract manufacturing agreement would be renewed. The remainder of the award was left untouched.
Hersheys had engaged Kanti for contract manufacturing of ‘Jumpin’ beverages for three years ending December 2007. The contract had a minimum commitment (“take or pay” for 12 lakh litres per year) and a clear termination clause. After losing money in 2005-06, Kanti asked to renegotiate rates. Hersheys gave financial help but ultimately chose not to extend the contract after 2007. Kanti claimed its hopes were fostered by Hersheys’ silence to extension queries. It alleged that the contract was extended by conduct till 2011 and sought damages for losses, closure of its factory, and use of its proprietary technology.
The arbitral tribunal found in Hersheys’ favour on all merits but, in the final portion of the award, still directed a payment to Kanti as a form of ex gratia relief for “expectation” not realized. Hersheys sought to set aside this part of the arbitral award, arguing there was neither any contractual commitment nor evidence to justify such compensation.
Hersheys argued there was no legal or factual basis to compensate “hope” when all substantive claims were rejected. The Court agreed, observing that the award’s final direction conflicted with its main findings and was “virtually picked out of a hat.” Kanti did not challenge the rejection of its other claims.
The Bench comprising Justice Somasekhar Sundaresan observed that severable, untenable portions of arbitral awards can be struck down while upholding the rest. It found that the compensation direction “shocks the conscience of the Court” and was unsupported by evidence or contract. The Court held compensation that for mere expectation, without agreement, is contrary to law and basic notions of justice.
In result, the Court severed the compensation direction and upheld the rest of the award, noting that Kanti had accepted the tribunal’s rejection of all substantial claims. All other interim applications were dismissed.
Case relied on:
Gayatri Balasamy vs M/s ISG Novasoft Technologies Ltd., 2025 INSC 605
Appearances:
For the Petitioner: Mr. Sarosh Bharucha, a/w Khushi Dhanesha, Laleh Pandole, i/b Vashi & Vashi
For the Respondent: Mr. Vishal Kanade
