An arbitral tribunal that finds a machine defective does not thereby acquire licence to unwind the sale as if the buyer never used it. In Gmmco Limited v. The Supreme Industries Ltd, OSA(CAD) No. 40 of 2025, decided on 29 September 2026, the Madras High Court partly allowed an appeal under the arbitration regime against an award directing refund of Rs 1,08,54,024 for a 500 KW gas genset, holding that a refund computed without accounting for depreciation or the claimant’s duty to mitigate offends the compensatory discipline of Section 73 of the Indian Contract Act, 1872. The refund component was set aside and remitted; the findings on jurisdiction and limitation survived.
A genset, a defect claim, and three questions
The supplier commissioned the 500 KW gas genset on 11 January 2011; the buyer logged defects on 6 September 2011 and ultimately invoked arbitration on 3 February 2014, claiming back the price of Rs 1,08,54,024 with interest. The arbitrator found for the buyer on the central claims and rejected the rest. On appeal before the Division Bench, the dispute resolved into three questions: was there an arbitration agreement at all; was the claim within limitation; and could the refund stand as computed?
Agreement by correspondence
The first question is a recurring one in machinery and equipment sales, where the paperwork is a lattice of offers, bids, purchase orders and emails rather than a single signed contract. The Bench found the arbitration clause in the commercial bid attached to the July 2010 offer, and the email exchanges demonstrated mutual acceptance of those terms. That satisfies Section 7 of the Arbitration and Conciliation Act, 1996 — an arbitration agreement may be contained in an exchange of communications which provide a record of the agreement.
Limitation ran from the defect, not the sale
On the second question, the Bench measured the three-year period not from commissioning in January 2011 but from 6 September 2011, when the defects were noted — the point at which the cause of action crystallised. Arbitration invoked in February 2014 was therefore in time. The point matters in practice: buyers of capital equipment often sit on warranty correspondence for months, and the identification of the correct starting point can decide the case before any engineer is heard.
The compensatory discipline of Section 73
The appeal succeeded on the third question. The tribunal had, in substance, unwound the sale: full refund of the price, though the genset had been commissioned and in the buyer’s hands for years. The Division Bench held that an award of damages which takes no account of depreciation for years of use, and does not ask whether the claimant took reasonable steps to mitigate, violates the principles underlying Section 73 of the Indian Contract Act — compensation is for loss actually suffered, not restitution of the price regardless of benefit received. The refund component was set aside and the matter remitted for reconsideration with both parties heard on quantum.
| Issue | Holding |
|---|---|
| Existence of arbitration agreement | Upheld — clause in the commercial bid, accepted through email exchanges (Section 7) |
| Limitation | Upheld — period ran from notation of defects; invocation within three years |
| Full refund of price | Set aside — no allowance for depreciation or mitigation; remitted for fresh determination |
What claimants and tribunals should take from it
Practice pointer: in equipment-defect arbitrations, commission a valuation of the machine in its defective-but-used condition early. Whichever side holds credible depreciation evidence tends to control the quantum debate — and, as this case shows, the fate of the award on challenge.
This article is for general information only and is not legal advice or a solicitation.
Frequently Asked Questions
What was the dispute?
Gmmco supplied and commissioned a 500 KW Caterpillar gas genset for Supreme Industries. After commissioning in January 2011, the buyer alleged manufacturing defects noted in September 2011 and invoked arbitration, seeking refund of Rs 1,08,54,024 with 12% interest. The arbitrator allowed the refund-centred claims and rejected the remainder; the supplier appealed.
How were jurisdiction and limitation decided?
The arbitration clause was located in the commercial bid forming part of the offer of 26 July 2010, and email exchanges showed mutual acceptance — enough to constitute an arbitration agreement under Section 7. On limitation, defects were noted on 6 September 2011, giving a three-year window; arbitration invoked on 3 February 2014 was within time. Both findings were affirmed.
Why was the refund award interfered with?
Because the tribunal ordered what was in substance a full refund without accounting for the years the buyer had used the equipment — no depreciation, and no examination of whether the buyer took reasonable steps to mitigate its losses. Section 73 of the Contract Act compensates loss actually suffered; it does not restore the price of a machine that has delivered service. The award was set aside on this point and remitted for reconsideration after hearing both sides.
What is the practical effect of a remand?
The claim is not dead — it returns for fresh adjudication on the quantum, this time with depreciation and mitigation on the table. Remand rather than outright rejection reflects the courts' preference, where the liability finding is intact, to cure the computational flaw rather than extinguish the claim.