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COMAP No. 229 of 2025

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 12

TH

DAY OF FEBRUARY, 2026

PRESENT

THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE

AND

THE HON'BLE MR. JUSTICE C.M. POONACHA

COMMERCIAL APPEAL NO. 229 OF 2025

BETWEEN:

M/S AVIO HELITRONICS INFOSYSTEMS PVT LTD

A COMPANY REGISTERED UNDER

THE PROVISIONS OF THE

COMPANIES ACT, 1956,

PLOT NO. 82 AND 83,

HITECH DEFENCE AND AEROSPACE SEZ PARK,

KIADB INDUSTRIAL AREA,

DEVANAHALLI, BENGALURU-562 110.

REPRESENTED BY ITS MANAGING DIRECTOR AND

CHIEF EXECUTIVE OFFICER,

MR. SAMEER SONPAVDE PREMNATH.

…APPELLANT

(BY SRI. NAIVN PAHWA, SENIOR ADVOCATE A/W

SRI. PRAJITH C, ADVOCATE)

AND:

M/S SAVEE AEROSYSTEMS PRIVATE LIMITED

HAVING ITS OFFICE AT NO. 311,

3RD FLOOR, PLOT NO. 371,

HIND SERVICE INDUSTRIAL ESTATE,

JAMBHEKAR MAHARAJ ROAD,

DADAR (WEST) MUMBAI-400 028,

REPRESENTED BY ITS AUTHORIZED SIGNATORY,

MR. HAREN CHANDRAKANTH SANGHAVI.

…RESPONDENT

(BY SRI.DHANANJAY V.JOSHI, SENIOR ADVOCATE FOR

MR. KASHYAP N. NAIK, ADVOCATE FOR C/R)

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COMAP No. 229 of 2025

THIS COMAP IS FILED UNDER SECTION 13(1-A) OF

COMMERCIAL COURTS ACT 2015, COMMERCIAL DIVISION

AND COMMERCIAL APPELLATE DIVISION OF HIGH COURTS

ACT, 2015 R/W SECTION 37 OF THE ARBITRATION AND

CONCILIATION ACT PRAYING TO ALLOW THE PRESENT

APPEAL IN FAVOUR OF THE APPELLANTS BY SETTING ASIDE

THE IMPUGNED ORDER DATED 29.03.2025 IN COM.AP

NO.24/2025, PASSED BY THE HONBLE COURT OF THE LXXXV

ADDITIONAL CITY CIVIL AND SESSIONS JUDGE,

COMMERCAIL DIVISION, BENGALURU (CCH-86) (ANNEXURE

A).

THIS APPEAL HAVING BEEN HEARD AND RESERVED

FOR JUDGMENT, COMING ON FOR PRONOUNCEMENT THIS

DAY, JUDGMENT WAS PRONOUNCED AS UNDER:

CORAM:

HON'BLE MR. VIBHU BAKHRU ,CHIEF JUSTICE

and

HON'BLE MR. JUSTICE C.M. POONACHA

CAV JUDGMENT

(PER: HON'BLE MR. JUSTICE C.M. POONACHA)

1. The present appeal is filed under Section 13(1) of the

Commercial Courts Act, 2015 [CC Act] r/w Section 37 of the

Arbitration and Conciliation Act, 1996 [A&C Act] impugning the

judgment dated 29.03.2025 passed by the LXXXV Addl. City Civil

& Sessions Judge, Bengaluru (CCH-86) (Commercial Court) in

Com.A.P.No.24/2025 [old A.S. No.191/2017) [ impugned

judgment], whereunder the petition filed by the appellant under

Section 34 of the A&C Act impugning an arbitral award dated

15.09.2017 [arbitral award] passed by the sole arbitrator [Arbitral

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COMAP No. 229 of 2025

Tribunal] in A.C. No.3/2015, was rejected. Vide the arbitral award,

the claim made by the respondent / claimant was partly allowed

and the appellant was directed to pay a total sum of

Rs.8,65,99,649/- as also a sum of Rs.1,09,17,991/- for purchase of

software, storage and UPS, as well as a sum of Rs.25,12,378/-

with service tax for rental Laptops. The said amounts were directed

to be paid along with the interest @ 18% per annum to the

respondent. The counter claims made by the appellants were

rejected.

2. The relevant facts in a nutshell leading to the present appeal

are that the claimant was in the business of providing consultancy

services pertaining to recruitment, strategy, consultancy and

implementation, business planning, business development,

marketing, sales, placement, accounts, HR advisory services and

other related services within India and abroad. The parties entered

into a business plan dated 28.07.2014 [business plan] and a

Consultancy Agreement dated 01.08.2014 [ Agreement]

whereunder, the claimant was required to deliver certain services

to the appellant.

3. The Agreement was for a period of 18 months fr om

01.08.2014 to 31.01.2016. Alleging that the appellant unlawfully

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COMAP No. 229 of 2025

terminated the Agreement, the respondent initiated arbitral

proceedings and made various claims before the

Tribunal. The

appellant had also made various counter claims. The Tribunal

framed following issues:

(1) Whether the Claimant proves that the termination of the

Consultancy Agreement dated 1-8-2014 is illegal and

without any basis or valid reasons?

(2) Whether the Claimant proves that the Respondent is

liable to pay them Rs. 12,03,07,649/- towards outstanding

professional fees and interest there on?

(3) Whether the Claimant proves that the Respondent is

liable to pay them Rs.25,12,378/- that is paid by them to

Prosol Itand interest there on?

(4) Whether the Claimant proves that the Respondent is

liable to pay them Rs. 1,09,17,991/- that is paid to purchase

Software, storage and UPS and interest there on?

(5) Whether the Claimant proves that the Respondent has

to be directed to stop using the software provided by them

to the Respondent under the agreement?

(6) Whether the Respondent proves that the Claimant is

liable to refund all the payments made for Software, storage

and UPS to the Respondent?

(7) Whether the Respondent proves that the Claimants

have to be directed to hand over to the Respondent all the

files including the Software licences and Software?

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COMAP No. 229 of 2025

(8) What Award or Order?

4. The proceedings before the Tribunal were contested by the

parties. The Tribunal vide the impugned award passed the

following Order:

The claim of the Claimant is allowed in part with

proportionate costs of the arbitral proceedings. The

Respondent is directed to pay to the Claimanta total of

Rs.86,599,649/- (Rupees Eight Crores Sixty Five Lakhs

Five Hundred Ninety Nine Thousand Six Hundred Forty

Nine only) and also interest at the rate of 18% per annum

on the same amount from the date of termination of the

contract that is 28-02-2015 till realisation of the entire

amount. The Respondent is directed also to pay to the

Claimant Rs. 1,09,17,991/- paid for purchase of Software,

Storage and UPS with service tax at applicable rate and

also interest at the rate of 18% per annum on the same

amount 28-02-2015 till realisation of the entire amount. The

Respondent is directed also to pay to the Claimant Rs.

25,12,378/- with service tax at applicable rate to the

Claimant towards rental paid for laptops and also interest at

the rate of 18% per annum on the same amount 28-02-2015

till realisation of the entire amount.

Rest of the claims of the Claimant are rejected. The Counter

Claim of the Respondent is also rejected.

5. Being aggrieved, the appellant preferred the petition under

Section 34 (Com.A.P. No.24/2025) before the Commercial Court.

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COMAP No. 229 of 2025

The Commercial Court by the impugned judgment, dismissed the

said petition with costs. Being aggrieved, the present appeal is

filed.

6. Heard submissions of leaned Senior Counsel Sri Naveen

Pahwa appearing along with Sri Prajith Chakkingal for the

appellant and learned Senior Counsel Sri.Dhananjaya Joshi,

appearing along with Sri Kashyap N.Naik for the respondent.

7.

The Arbitral Tribunal while considering issue No.1 as to

whether the claimant had proved that the termination of the

Agreement was illegal and without any basis noticed that periodic

assessments as contemplated in clause 9 of the Agreement for

progress review "should have been a joint effort and therefore, the

periodical reports were not expected to be done unilaterally by the

claimant alone". Further, the Tribunal noticed the email sent by the

appellant to the claimant on 28.02.2015 (Ex.R7), whereunder the

Agreement was terminated and held that although few reasons

have been stated in the said email, no attempts have been made

by the appellants even thereafter to make clear to the claimant the

reasons for termination of the Agreement. The relevant finding of

the Tribunal is as under:

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COMAP No. 229 of 2025

17. ..... It is clear from this email Ex.R-7 that they having

chosen to state that few of the main reasons therein but,

there has been no attempt to make it clear even later to the

Claimant for what other reasons the Respondent chose to

terminate the contract under the agreement. Clause 16 of

the Agreement requires that Service Provider shall replace

any non-productive engineers within 7 days of request by

AIS, with another engineer who is better qualified or at least

more competent. From the statement made in Ex.R.7 that

they were constrained to terminate the contract with

immediate effect it is clear that they did not want to give any

time to the Claimant for any kind of redressal of their

grievances contrary to the terms of the contract out of those

quoted above and therefore the termination was abrupt. It is

the evident from the testimony of the witness of the

Respondent as well as the testimony of the witness of the

Claimant that there was no written complaint or suggestion

for redressal of any grievances at any earlier point of time

than issuing the notice for termination of the contract at

Ex.R-7. No doubt, Clause 27 of the contract at Ex.P-2 does

not specifically state that the termination notice should be

followed by any request for redressal or to state that how

many days after the issuance of notice of termination it

should take effect. In my considered opinion it does not

mean that the Respondent could have terminated the

contract in such a way to take aggressive step with

immediate effect that too without any warning or request for

redressal asa prelude for termination of the contract. The

RW-1 has admitted during cross-examination that they have

not sent any email to the Claimant before terminating the

contract by them stating that their performance of the

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COMAP No. 229 of 2025

obligations was not satisfactory. Her statement that they

had communicated orally to the Claimant is denied by the

Claimant by way of suggestion during cross-examination

and there is no statement on oath or otherwise by the PW1

that they had received any such observation even orally. It

is the specific case of the Claimant that the Respondent

had never communicated to them that their performance of

the obligations was not satisfactory. There is no evidence

on record of any such communication by Respondent to the

Claimant. RW-1 has admitted that they have not sent any

notice or email to the Claimant earlier to the termination of

the contract stating that the services of the Claimant were

not up to the mark. She has admitted that few of the

employees of the Claimant were working with them as on

28.02.2015 and they have absorbed all those employees

with them on the ground that they were forced to do so on

humanitarian grounds though they had no contractual

obligation to absorb those employees with them. This was

an act beneficial to the Respondent in the bargain,

especially when they terminated the contract much before

the contract period came to an end. RW-1 has admitted

during cross-examination that they did not send any letter or

email to the Claimant that they did not provide proper

services with regard to facilitating staff to the Respondent

and that there was no proper planning in bringing inflow to

the Respondent Company to achieve the requirements as

agreed in the agreement. Her evasive answer that they had

been following this aspect over phone has no corroboration.

The learned Counsel for the Claimant has, rightly it

appears, argued that as suggested by him to the witness

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COMAP No. 229 of 2025

since there was no deficiency on the part of the Claimant

the Respondent had no occasion to send any notice or

email on this aspect to the Claimant. Clause 22 which we

have seen above provides that the Respondent was entitled

to get any resources not meeting their expectation either in

quality or in competence or in performance or efficiency or

any other contractual agreement removed immediately and

however they were entitled also to request the Claimant to

replace the same within two working weeks with the

commensurate resources. This Clause impliesthe

obligations, responsibility and duty on both the parties but it

is not a one sided Programme. Though removal of a lot of

engineers by the Respondent was done on 5-2-2015, less

than a month earlier to the termination of the contract, the

Respondent did not choose to request the claimant to

replace the same within two working weeks with the

commensurate resources under clause 22. RW.1 has

clearly admitted during cross-examination that she is not

aware of any letter, email or notice to have been sent by the

Respondent to the Claimant stating that they were causing

delays in work. RW-1 has further admitted during cross-

examination that they have no written notes issued to the

Claimant stating that they had lacked in reporting, in

meeting the obligations and in giving explanations for

delaying the work of the Respondent. It is suggested to her

that there was absolutely no delay on the part of the

Claimant in performing their work under the contract. If,

really, there was such delay there would have been at least

a letter or email or notice sent by the Respondent to the

Claimant asserting the same. But, no such documents have

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COMAP No. 229 of 2025

either been claimed to be in existence or produced by the

Respondent before this Tribunal.

(emphasis supplied)

8.

The Tribunal, noticing the correspondences between the

parties held that the termination as per the terms of clause 27

would arise only when there was non-performance in any of the

Key Performance Indexes (KPIs) for a continued period of two

quarters but not otherwise, which was not alleged by the appellant.

It is also found that the consultancy charges were paid to the

claimant without any protest. The relevant finding of the Tribunal in

this regard is as under:

20. It is to be further seen that Clause 27 attracts

termination only when there was non-performance in any of

the KPls for a continued two quarters but not otherwise. The

learned Counsel for the Claimant argued that when the

notice for termination of contract dated 28.02.2015 was

issued, admittedly non-performance for continued two

quarters was neither alleged by the Respondent nor has

been shown by means of acceptable evidence before this

Tribunal. On the other hand, the learned Counsel for the

Respondent argued that two quarters period of non-

performance had completed by 28.02.2015 when the notice

was issued when calculated from 01.08.2014 the date of

commencement of the period of agreement. It is to be

appreciated that Clause 27 does not state that termination

of the contract could have been done by the end of two

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COMAP No. 229 of 2025

quarters of the commencement of the agreement. But, it is

the specific stipulation unambiguously that in order to attract

termination of the contract there should have been non-

performance in any of the KPls for a continued two quarters

(Emphasis supplied). It should mean that there should have

been continuous non-performance of any of the KPIs by the

Claimant for not less than two quarters, that is, six months.

It cannot be disputed that there should have been non-

performance of any of the KPls by the Claimant

commencing from the very beginning of the period of

contract on 01.08.2014 so that the continued period of two

quarterscould have been over by 28.02.2015 as far as non-

performance by the Claimant is concerned. Admittedly, the

Respondent never complained about the non-performance

at any time in writing to the Claimant as to whether there

was at all non-performance by the Claimant or on what

grounds the Respondent could have aired their grievances

regarding performance by those recruited by the Claimant

and placed at the services of the Respondent. It is not the

specific case of the Respondent at all that the Claimant

failed to perform their obligations at least in August and

September 2014. On the other hand the fees payable for

those two months to the Claimant at the rate of Rs.1.8

Crores per month under the contract was paid to them

without demur of any protest. Therefore it was never the

case of the Respondent that there was non-performance of

any of the KPIs by the Claimant for the first two months at

least. Thus it is clear that by the time the termination notice

was issued on 28-02-2015 two quarters' non-performance

did not occur at all.

(emphasis supplied)

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COMAP No. 229 of 2025

9.

The Tribunal considered the various materials on record with

regard to the ground for termination as was urged by the appellant

and held that the appellant had also participated in the recruitment

process of the employees who were hired by the claimant. It had

further held that the appellant could not have complained of the

claimant not having met the requirements as early as February

2015 i.e., within six months of the Agreement when the tenure of

the Agreement was for a period of 18 months. Hence, the Tribunal

held issue No.1 in the affirmative. The Tribunal also held issue

No.2 partly in the affirmative and held that the appellant was liable

to pay a sum of Rs.36,76,649/- as part fee for October 2014 and

Rs.1,55,07,000/- for December 2014; and Rs.3,37,08,000/- each

for January and February 2015. Hence, it was held that the

appellant was liable to pay the claimant a total sum of

Rs.8,65,99,649/- together with interest at 18% per annum from the

date of termination till realisation.

10. With regard to Issue Nos. 3 and 4, the Tribunal held the

same in the affirmative that the appellant was liable to pay the

claimant a sum of Rs.25,12,378/- with service tax as the rental for

laptops and Rs.1,09,17,991/- for purchase of software, storage and

UPS together with applicable service tax.

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COMAP No. 229 of 2025

11.

In this context, it is pertinent to note that the parties had

entered into a business plan and proposal dated 28.07.2014,

consequent to which, the Agreement was entered into on

01.08.2014. Some of the relevant clauses of the said Agreement

are as under:

5. Towards rendering of the services to AIS the service provider

shall:

a) Provide 4 smart & aggressive HR recruiters and

reorganize the HR Process to the benchmark it with the best

in the industry.

b) Provide 2 to 5 domain experts for

DRDO/HAL/BEL/CSIR-Design, HAL/BEL-mfg., Military-

market-Researcher/Strategist and manufacturing expert.

c) Provide around 250 engineers in the field of

Aeronautical embedded software, embedded systems and

avionics - R & D.

d) Provide 40 experienced (2-20 yrs) engineers

depending on the project requirements.

e) provide 5 experienced BD experts.

The above manpower estimation may be increased by

the service provider to meet its deliverable area and KPIs.

AIS is not responsible for any extra cost incurred by the

service provider for any reason. -

xxxxx

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COMAP No. 229 of 2025

6. Service provider assures the following KPIs:

a) Recover lost key accounts with ELBIT SYSTMS

LTD. Israel and its subsidiary group companies to build US$

5Mn order in-take during the contract period of 18months

b) Recover lost key accounts with SOGECLAIR

AEROSPACE SAS, France/Germany, SII, France, AUSY,

France to build US$ 1Mn order in-take during the contract

period of 18 months

c) Recover lost key accounts with AIRBUS and its

subsidiaries like EUROCOPTER, AIRBUSMILITARY,

AEROLIA and MBDA to build US$ 10Mn order in-take during

the contract period of 18 months.

d) Recover lost key accounts with RAFAEL

SYSTEMS, Israel to build US$ IMn order in-take during the

period of 18months

e) Enhance business with key accounts like THALES,

France and its subsidiaries and European Suppliers, in new

areas such as mechanical systems-design & manufacture

and software development to build US$ 40Mn order in-take

during the contract period of 18 months.

f) Enhance chances of business with prime prospects

like DASSAULT, BOEING, LOCKHEED MARTIN, BAE-

SYSTEMS, SHINMAYWA, SIKORSKY, and BELL for a

possible business opportunity worth US$ 20Mn.

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COMAP No. 229 of 2025

7. The strategic plan given above will address the mid

and long term goals of AIS to Achieve an annual turnover of

US$ 15Mn by 2016-17, US$ 25Mn by 2017-18, US$ 35Mn

by 2018-19 and US$ 45Mn by 2019-20 - thereby ensuring

the returns on investment in 4-5 yrs, as a result of the

contractual BOT (Build operate Transfer) agreement.

8. The Service provider will assure the following

turnover for the period from August 2014 to January 2016

based on the Actual

turnover for the Period from February

2013 to July 2014:

Actual Turnover for the period February, 2013 to July, 2014

Verticals Total in INR Total in USD Total in EURO Total in GBP

Avionics Analysis Rs.8,550,700 $123,816 €107,220 ₤89,095

Avionic Embedded

Systems

Rs.164,230,620, $3,016,173 €2,345,817 ₤1,908,771

Avionics Software Rs.52,038,404, $867,293 €645,553 ₤541,056

Avionics Structure Rs.77,241,324 $1,301,790 €987,92 4 ₤820,687

Information

Systems and

Security

Rs.192,000 $3,186 €2,347 ₤1,897

Technical

Publication

Rs.138,138,864 $2,532,211 €1,968,768 ₤1,602,320

Grand Total Rs.440,391,913 $7,844,469 €6,057,629 ₤4,963,825

Projection for the period August, 2014 to January, 2016

Verticals Total in INR Total in

USD

Total in

EURO

Total in

GBP

Avionics Analysis Rs.25,652,100 $371,448 €321,660 ₤267,285

Avionic Embedded

Systems

Rs.492,691,860 $9,048,519 €7,037,451 ₤5,726,313

Avionics Software Rs.156,115,212 $2,601,879 €1,936, 659 ₤1,623,168

Avionics Structure Rs.231,723,972 $3,905,370 €2,963 ,772 ₤2,462,061

Information

Systems and

Security

Rs.576,000 $9,558 €7,042 ₤5,691

Technical

Publication

Rs.414,416,593 $7,596,633 €5,906,303 ₤4,806,959

Grand Total Rs.1,321,175,737 $23,533,407 €18,172,88 7 ₤14,891,475

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COMAP No. 229 of 2025

9. Periodic assessment of the activities at AIS

shall be conducted by the service provider at frequency of 3

months and a report along with actions proposed shall be

submitted to AIS.

10. The Service Provider will provide All necessary

and new computers/PC's/Laptops/ /Server etc., for the

engineers would have to be procured and installed and

managed (with 90% uptime + System Administrator onsite

placement) by Service Provider at the premises of AIS.

xxxx

15. The Parties agree that this Agreement is based

on a Build-Operate-Transfer model, wherein Service

Provider will be required to recruit engineers, Recruiters,

Onsite-Placement-Consultants, BD personnel and place

them as required by AIS to ensure building a profitable

business model. AIS shall issue Specific Purchase Orders

for its requirements arising from time to time. All the

infrastructure, processes, Tools (including the softwares)

thus created/procured shall be transferred to AIS after the

end of the project. Such transfers, if required by AIS shall be

done at the written down value or market value, whichever is

less.

xxxx

19. As consideration for the Services provided

herein, AIS shall pay to the Service provider a sum not

exceeding Rs.1,80,00,000/- (Rs. One Crores Eighty Lakhs

Only) per month in the month of August & September 2014

in order to build confidence and ease the engagement

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COMAP No. 229 of 2025

process. The Consultancy fees for remaining 16 months

shall be Rs.3,60,00,000/- (Rupees Three Crores Sixty Lakhs

Only) per month.

20. The Service provider shall raise an invoice for the

aforesaid amount in advance at the beginning of each month

and send the same to AIS. A consideration should be

remitted within 10 days on submission of bill.

xxxx

27. Non-performance in any of the KPIs for a

continued 2 quarters will attract termination of the contract.

The consultant will not hold the client commercially liable or

responsible for early foreclosure of the contract due to non-

performance of the consultant. The consultant will reimburse

the client for 50% of the entire consultancy fees for the

period of non-performance and will forego the fee for the

remaining period of the contract.

28. Progress review will be jointly held every month

between CFO or consultant and CEO/Dy.CEO of client

organization or persons designated by them, if mutually

acceptable. The commitments within this Business plan &

Proposal, monthly plan, any other requirements shall from

the KPls for the progress review.

xxxx

30. If within a period of sixty (60) days, the event

continues and the parties are unable to identify a workable

alternative, either party may terminate this Agreement and/or

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COMAP No. 229 of 2025

the relevant SOW by invoking the Termination clause of this

Agreement.

xxxx

32. xxxx

(d) if the either party violates or breaches any

terms and conditions as above, both party may, without

prejudice to its right to terminate this agreement as provided

for in Clause 27 hereinabove, proceed and recover any loss

and / or damage caused to them due to the violation and to

further proceed under the relevant laws and claim penalty

damages, from the Company.

e) All disputes which cannot be resolved amicably

shall be subject to arbitration at Bangalore in accordance

with the Arbitration and Conciliation Act, 1996.

12. The consultancy Agreement commenced on 01.08.2 014

and was for a period of 18 months. The monthly consultancy fee

was Rs.360 lakhs + 12.36% service tax payable in advance on or

before 10

th

of the month. However, for the months August and

September 2014, it was agreed that only 50% of the consultancy

fee would be paid [Rs.1.80 lakhs + 12.36% service Tax].

13. The said Agreement was terminated by the appellant vide e-

mail dated 28.02.2015. The said e-mail is as under:

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COMAP No. 229 of 2025

"Dear Sirs,

Kindly be informed, that we are constrained to

terminate the above contract with immediate effect, as it is

not meeting our defined contractual SLA (Service Level

Agreements). Few of the main reasons, but not limited

to, which have compelled us to take this decisions are as

follows:

1) Inadequacy of services as defined in clause 4 of the

contact - leading to increased outflow and no visible forecast

for inflow in the near-term

2) No progress demonstrated towards the proposed KPIs

mentioned in clause No.6

3) No reports received since Oct 2014 as required under

clause no. 9.

Kindly take necessary action to stop further expenditures

and/or commitments towards the said contract - as they will

not be considered during settlements per Clause 14 & 27"

14. The Tribunal had framed issue No.1 as to whether the

termination was illegal and without any basis or reason. As noticed

above, while considering the said issue, the Tribunal held that

there was no basis for the appellant to terminate the Agreement

since there was no deficiency on the part of the claimant. It was

noticed by the Tribunal that the appellant did not send any

communication calling upon the claimant to redress any grievances

nor was any time given to the claimant to rectify or improve its

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COMAP No. 229 of 2025

performance. It was the specific case of the claimant that the

appellant never communicated to them that its performance of the

obligations was not satisfactory. The Tribunal, by construing the

fact that the appellant had paid the monthly remuneration amount

to the claimant for the months of August 2014 and September

2014, has construed the same as an indication that the appellant

was satisfied with the services rendered by the claimant.

15.

In this context, it is pertinent to note that clause 6 of the

Agreement specifically noted that the claimant had assured the

KPIs as mentioned therein, to be achieved. Clause 8 of the

Agreement also specified the assurance by the claimant of the

turnover from August 2014 to January 2016, which was based on

the actual turnover of the appellant from February 2013 to July

2014. The claimant has not placed any material on record to

indicate that the assured KPIs or the turnover as assured by it in

the Agreement were achieved. The Tribunal has not specifically

dealt with the assurances as agreed between the parties in clauses

6 and 8 of the Agreement. In fact, the appellant in the termination

email dated 28.02.2015, had specifically mentioned that there was

no progress demonstrated towards the KPIs mentioned in clause 6

of the Agreement.

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COMAP No. 229 of 2025

16. At this juncture, it is pertinent to note the background of the

scope of services as stated in the business plan, which is an

indication as to the intent with which the parties entered into the

Agreement. The background, as mentioned in the business plan is

extracted hereunder:

BACKGROUND

AvioHeliTronics InfoSystems Pvt. Ltd. (AIS) is a wholly

Indian MSME Engineering Services & Manufacturing

company with Defence Industrial License and CEMILAC

(MoD Laboratory for Military Aircraft Airworthiness

Certification) approval. AIS is also registered as 100% EOU

unit under Cochin Special Economic Zone. AIS quality

processes are certified CMMI-Level3, AS9100RevC, and

ISO27001:2005 and ISO9001:2008. AIS is also MSME

(Micro Small Medium Enterprise) certified by Government of

India, hence providing an offset multiplier in defence. The

company has broad-based its risks by including variety of

Aerospace Services in the portfolio: Embedded-Software,

AeroStructure Design/ Analysis/ Prototyping, Embedded-

Systems Design & Manufacture, Technical-Documentation

and AeroStructure-Manufacturing. AIS has however, since

inception in early 2006, struggled to meet cash-flow vis-à-

vis business intake and growth targets. AIS is desirous of

circumventing all internal process & strategy related

bottlenecks to make a quantum leap in the Aerospace &

Defence Engineering industry - Civil & Military-

internationally & nationally. AIS wishes to gear up and

project the image of a strategic supply chain & defence

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offset partner to the likes of Dassault, Airbus, Eurocopter,

Safran, Turbomeca, Sagem, Boeing, Lockheed Martin,

BAE, Sikorsky, Bombardier, Rockwell-Collins, Honeywell,

GE, Rolls-Royce as well as DRDO, HAL, BEL, NAL, etc.

(emphasis supplied)

17. It is also pertinent to notice the opportunities as visualized by

the appellant which was mentioned in the business plan. The

relevant portion of the same is as under:

> If substantial capital is invested to build teams, R&D and

Infrastructure, above OEMs will be convinced in perceiving

AIS as a serious contender and strategic supply chain

partner

> Employing strong lobby through reputed ex-DRDO and/or

ex-HAL/ex-CSIR/ex-MoD/ex-OFB/ex-Military personnel with

their past contacts in the major foreign OEMs' offices, is

another important strategy to succeed at creating greater

visibility, access & success

> Strong PR with French, German, UK & USA at their

embassies to create visibility in Civil as well as Military

engineering outsourcing opportunities is very do-able but

will require considerable investment to ensure the same.

18. The business plan and proposal which also contained the

strategic plan is as under:

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COMAP No. 229 of 2025

BUSINESS PLAN & PROPOSAL

1. STRATEGIC PLAN

Assessment of the Activities

Periodic assessment of the activities at AIS shall be

conducted by the service provider at a frequency of 3

months and a report along with actions proposed shall be

submitted to AIS.

As per the initial assessment done in the month of July

2014, the following broad actions are identified;

> Provide high level domain experts from retired DRDO,

HAL, CSIR & Military to lobby and provide PR with high

level management of foreign OEMs - to create a perception

of higher capability at delivery in niche technology areas

> Provide culturally savvy BD experts to liaise with mid-level

management of foreign OEMs in India and abroad - to

improve chances of visibility to receive RFPs & RFIs as and

when globally released

> Provide large teams of engineering staff in low, mid &

high levels of experience to showcase delivery capability

> Employ aggressive HR recruiters to attract the best talent

from the Indian job market

> Broad-base the risk and improve corporate visibility &

image, by avoiding over-focus in Aerospace & defence

business and include strategy of scoping other markets like

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COMAP No. 229 of 2025

Railways, Naval-Ship-Building, local DRDO/HAL/BEL/CSIR,

IT, ITeS, etc.

19. It is clear from the aforementioned that the appellant was a

Micro Small and Medium Enterprise (MSME) Engineering and

service manufacturing company with a defence industrial license

which was already carrying on the business of providing a variety

of aerospace services. The intent and purport of the appellant

entering into an Agreement with the claimant has been adequately

captured in the business plan as noticed above, which is indicative

of the fact that the appellant intended to increase its business by

attempting to secure new clients and businesses and also expand

the volume of business from its existing clientele. Hence, the KPI

and the turnover mentioned in clauses 5, 6 and 8 of the Agreement

have been clearly stipulated. The Arbitral Tribunal has not, in any

manner, dealt with the said aspect of the matter while adjudicating

upon the reasons for the termination by the appellant i.e., non-

performance of the KPIs by the claimant.

20. Although, it is sought to be contended on behalf of the

appellant that the consultancy agreement is the binding contract

between the parties and the Arbitral Tribunal ought not to have

considered the business plan, the business plan has been

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COMAP No. 229 of 2025

considered in these proceedings so as to deduce the purport and

intent with which the consultancy agreement was entered into

between the parties and not for the purpose of interpreting the

business plan so as to override the terms of the agreement.

21. It is forthcoming from clause 5 of the agreement that the

claimant was required to provide 4 HR recruiters, 2 to 5 domain

experts, 250 engineers in the field of aeronautical embedded

software, embedded systems and avionics R&D, 40 experienced (2

to 20 years) engineers depending on project requirements and 5

experienced BD experts. Vide email dated 05.02.2015, the

appellant had informed the claimant that it had decided to eliminate

124 probationary engineers due to non-performance. By another

email dated 05.02.2015, the appellant intimated the claimant that it

had short-listed 52 probationary engineers. It is forthcoming from

the record that pursuant to the Agreement, the claimant had

recruited various personnel as per the requirement of the appellant.

However, it is the consistent case of the appellant that the

employees hired by the claimant were not qualified and did not

meet the criteria/requirements of the appellant, due to which a

large number (142) were asked to leave due to non-performance.

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COMAP No. 229 of 2025

22. A perusal of clause 6 of the agreement indicates that the

claimant was required to recover lost key accounts of various

companies and its subsidiaries, and build the order intake upto an

amount specified in the said clause. It is pertinent to note here that

there was no material placed by the claimant to demonstrate that it

had secured new businesses/clients for the appellant or in any

manner expanded the volume of business from the exi sting

clientele of the appellant. The only reference to the same is a

statement in the cross examination of PW-1, whereunder PW1 has

admitted that it did not meet any customers of the appellant. There

was no independent material placed on record by the claimant to,

in any manner demonstrate, that it had complied with the

stipulations as stated in clauses 5, 6 and 8 of the Agreement. In

fact, the Tribunal had also recorded a finding that the six months

period was “too short a time” to require the claimant to achieve the

KPIs. The said finding of the Tribunal is contrary to the purport and

intent of the parties in entering into the Agreement and

tantamounts to re-writing the contract between the parties.

23. The Tribunal had noticed that non-performance of KPIs

ought to have continued for two quarters. The Agree ment

commenced on 01.08.2014 and was terminated on 28.02.2015 i.e.,

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COMAP No. 229 of 2025

after six months (two quarters). The finding of the Tribunal that

when the termination notice was issued on 28.02.2015, two

quarters non-performance did not occur at all, is ex-facie

untenable. The said finding is premised on the fact that the

appellant paid the claimant the monthly remuneration charges for

August and September 2014 at the rate of Rs.1.8 crores per month

without any demur or protest and hence the said months of August

and September 2014 cannot be taken into account for calculating

the six month period i.e., two consecutive quarters.

24. As noticed above, the termination was made after six months

of the parties having entered into the Agreement. Merely since the

appellant had paid two months remuneration in its entirety to the

claimant (i.e., for the months of August 2014 and September

2014), the finding of the Arbitral Tribunal that the same having

been made without any demur or protest, the said two months

cannot be considered while determining the period of two quarters,

is ex-facie, without any basis.

25. As noticed above, clause 8 had also specified t he

assurances of the claimant with regard to the turnover projection

for the period August 2014 to January 2016.

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COMAP No. 229 of 2025

26. Although, there is no periodic specifications provided in

clauses 5, 6 and 8 of the agreement, which mandated the claimant

to adhere to, it is pertinent to note here that it is not even the case

of the claimant that in 2 quarters (6 months) it had achieved a

fraction of the assurances as stipulated in clauses 5, 6 and 8 of the

agreement. It is also pertinent to note that the claimant did not

immediately reply to the termination made by the appellant vide its

email dated 28.02.2015. It is a matter of record that the appellant

wrote another email dated 26.03.2015 once again intimating the

claimant that it had terminated the agreement. It is only thereafter

that the claimant got issued a legal notice dated 21.05.2015 (Ex

P27).

27. Neither in the response of the claimant to the termination

made by the appellant, nor has it been placed on record in the

arbitration proceedings that the claimant has achieved a portion of

the assurances as made in clauses 5, 6 and 8 of the agreement.

Further, apart from the email dated 05.02.2015 wherein the

appellant had intimated the claimant its decision to retain 52

probationary engineers and remove 124 probationary engineers,

no other material is placed on record by the claimant to indicate

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COMAP No. 229 of 2025

that it had provided the other personnel as stipulated in clause 5 of

the agreement.

28. In view of the foregoing, the finding of the Tribunal on Issue

No.1 is without any basis and is patently illegal.

29. The vehement contention of the counsel for the respondent

that the finding of fact made by the Arbitral Tribunal regarding issue

No.1 ought not to be interfered by this Court in the present appeal,

is not liable to be accepted since the said finding is patently illegal,

having been made without any basis and contrary to the material

on record.

30. Further, the finding of the Arbitral Tribunal that the periodic

assessments as contemplated in clause 9 of the Agreement

"should have been a joint effort" is also contrary to the said clause

9 as stipulated in the Agreement.

31. The Commercial Court has also not considered the aspect of

termination of the agreement in the proper perspective and without

noticing the fact that the finding of the Arbitral Tribunal was without

adequately noticing clauses 5,6 and 8 of the agreement in the

proper perspective.

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COMAP No. 229 of 2025

32. It is forthcoming from the record that for the months of

August 2014 and September 2014, the agreed amounts have

been paid by the appellant to the claimant, whereas for the month

of October 2014, a sum of Rs.2,97,46,351/- was paid along with a

debit note of Rs.1,03,61,249/- and for the month of November

2014, a sum of Rs.3,34,23,000/- was paid. For the month of

December 2014, a sum of Rs.1,79,16,000/- was paid. Admittedly,

for the months of January and February 2015, no payments have

been made. The Arbitral Tribunal has held that the appellant is

liable to pay professional fee to the claimant for the months of

December 2014, January 2015 and February 2015. Issue no. 2

was answered partly in the affirmative as under:

...... Therefore, I answer issue No.2 partly in the

AFFIRMATIVE that the Respondent is liable to pay

Rs.36,76,649/- for part of the fee for October 2014,

Rs.1,55,07,000/- for December 2014 and

Rs.3,37,08,000/-

each for January and February 2015,

thus a total of Rs.86,599,649/- (Rupees Eight crores

Sixty Five Lakhs Five Hundred Ninety Nine Thousand

Seven Hundred Forty Nine only) and also interest at the

rate of 18% per annum on the same amounts from the

date of termination of the contact till realization of the

entire amount.

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COMAP No. 229 of 2025

33. Even if the finding of the Arbitral Tribunal on issue No.1 is

interfered with, having regard to the fact that the Agreement was

terminated on 28.02.2015, the appellant was liable to pay the

claimant the agreed monthly charges during the period when the

Agreement was in force i.e., from August 2014 to February 2015.

However, clause 27 of the Agreement which is extracted in para

No.11 hereinabove stipulates that non performance of any of the

KPIs for a continued two quarters will attract termination of the

contract, in which event, the claimant was required to reimburse

50% of the entire consultancy fees for the period of non-

performance. Hence, the claimant is entitled to only 50% of the

consultancy fee for the said period of six months. However, the

arbitral Tribunal has recorded a finding on issue No.2 by taking the

entire agreed consultancy fee payable.

34. Having regard to a plain reading of clause 27 o f the

Agreement and since the finding of the Arbitral Tribunal on issue

No.1 has been set aside, the finding of the arbitral Tribunal on

issue No.2 and the award of Rs.8,65,99,649/- together with interest

at 18% is also without any basis and liable to be set aside.

However, the parties are at liberty to initiate fresh arbitration

proceedings in respect of the claim towards consultancy fees

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COMAP No. 229 of 2025

payable by the claimant to the appellant for the period of six

months between 01.08.2014 to 28.02.2015, in terms of the

Agreement (particularly clause 27).

35. Claim Nos.3 and 4 pertains to reimbursement of a sum of

Rs.25,12,378/- paid by the claimant to Prosol IT towards the rental

charges for laptops and claim No.4 is of a sum of Rs.1,09,17,991/-

paid towards purchase of software. In this context, it is pertinent to

note that in the Agreement, there is no clause which specifies that

the amounts incurred by the claimant for providing the laptops and

the software are to be reimbursed by the appellant. All the e-mails

produced by the claimant are exchanged between the claimant and

the supplier of the laptops i.e., Prosol IT. The claimant has also

produced the invoices to show the rental charges paid by it.

However, the appellant has taken a specific contention in its

statement of objections filed before the Arbitral Tribunal that it has

paid the amounts to the claimant. The relevant portion of the

statement of objections reads as under:

12. Reg Para 9 & 10: The contents of this paragraph

are denied as false and your client is put to strict proof of

the same. The respondentinforms that they have paid in full

for the purchase of various software and other tools

undertaken by the Claimant. The Claimantmisled the

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COMAP No. 229 of 2025

Respondent that the aforesaid purchases were basic

requirements and should be purchased. Further, the

Claimant stated that the ownership of the aforesaid

purchases would be transferred to the Respondent the

Claimant though installed the software on the Respondent

system, has with ulterior motive and subterfuge, purchased

all licenses in itsname. While the Respondent has paid for

the said software, the Claimant is now claiming the same.

From the correspondence filed it is clear that the Claimant

has enjoyed themoney paid by the Respondent has taken

the licenses towards the software in its name. This is a

criminal breach of trust by the Claimant, against which the

Respondent reserves its right to initiate separate

proceedings against the Claimant. The Claimant is now

attempting to terminate the usage. Withoutprejudice the

Respondent submits, after having spent heavily on the said

software, on the representations of the Claimant, the

Respondent has not profited or even broken even on the

said licenses. It has been another useless investment

made. based on the representations made by the claimant.

It is false to state that the Claimant has paid advance rent

for supplying HP Laptops on rental basis to the

Respondent’s office, as the Respondent states that they

have made the payments towards all the purchase orders

submitted and the Claimant only facilitated the purchase.

The Respondent submits that the qualities of the laptops

procured wee pathetic. The fact of the matter is that all

laptops were rented from one Prosol IT was returned to

PROSOL after 12 months. With the said losses incurred by

the Respondent due to thecallous attitude of the Claimant, it

is this Respondent that is due money from the Claimant, a

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COMAP No. 229 of 2025

right which it will invoke in due course as it reserves the

same presently. Respondentreiterates that all these have

caused it tremendous loss, ad it reserves the right to claim

the loss from the Claimant.

(emphasis supplied)

36. The said aspect was noticed by the Arbitral Tribunal and

hence the Arbitral Tribunal held that the appellant was liable to pay

the claimant a sum of Rs.25,12,378/- towards the rental charges

towards laptops, which finding is based on the material on record.

37. With regard to claim No.4 i.e., the purchase of software,

although the claimant has produced invoices to indicate that it has

incurred various expenses for the purchase of software and on the

said basis the Arbitral Tribunal has awarded a sum of

Rs.1,09,17,991/-, however, the purchases made by the claimant

are in the name of the claimant itself. There is no material on the

record to indicate that the said software was utilised on the laptops

that were supplied by the claimant to the appellant. In fact, the

appellant has specifically contended that the claimant has

continued to use the software even after termination of the

Agreement. The finding of the Arbitral Tribunal holding the

appellant liable to pay a sum of Rs.1,09,17,991/- towards charges

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COMAP No. 229 of 2025

for laptops is without any basis and liable to be interfered with on

the ground of patent illegality.

38. In view of the foregoing, the award of the Arbitral Tribunal for

payment of Rs.8,65,99,649/- together with interest at 18% as well

as for payment of Rs.1,09,17,991/- for purchase of software,

storage of UPs with service tax and interest are set aside. The

remaining portion of the award is not interfered with.

39. The parties are at liberty to initiate fresh arbitration

proceedings with regard to the consultancy fee payable between

01.08.2014 and 28.02.2015.

40. The appeal is disposed of in the aforesaid terms.

41. Pending IAs., if any, stand disposed of.

Sd/-

(VIBHU BAKHRU)

CHIEF JUSTICE

Sd/-

(C.M. POONACHA)

JUDGE

BS/nd