The Court Can't Re-Appreciate Evidence Or Re-interpret Contracts While Examining Patent Illegality : Calcutta High Court

The Calcutta High Court bench of Justice Sabyasachi Bhattacharyya has held that the court cannot re-appreciate evidence under the guise of patent illegality, as per the proviso to Section 34 (2-A) of the Arbitration and Conciliation Act, 1996. It remarked that the Court cannot be sitting in appeal over the Tribunal's decision and cannot re-interpret the contract differently from the Tribunal without evidence of patent illegality. Brief Facts: A gas purchase and sale agreement dated May 11, 2011, was entered between the petitioner, SRMB Srijan Limited (SRMB) and Great Eastern Energy Corporation Ltd (the Claimant/Respondent). The agreement was to supply Coalbed Methane Gas to SRMB until April 30, 2034. SRMB was required to adhere to a Minimum Guaranteed Offtake (MGO) and to compensate for any shortfall in MGO by paying for the entire amount. During the contract period, SRMB sought a waiver of the MGO Clause. SRMB alleges that a consensus was reached where the MGO was to be waived with an increase in the gas purchase price by Rs. 5/- per SCM. The Claimant disputed this by asserting that no concluded agreement was made for the waiver. Based on the presumed waiver of MGO, SRMB stopped renewing the bank guarantee required under the contract. Consequently, the Claimant suspended the gas supply after notifying SRMB of the non-renewal of the guarantee. On July 7, 2014, SRMB terminated the agreement in writing, alleging the stoppage of gas supply as the reason. The Claimant invoked the arbitration clause in the agreement. The Arbitral Tribunal passed an award declaring that SRMB's termination was invalid and that the agreement was still in effect. The Tribunal permitted the Claimant to remove its underground gas pipelines from SRMB's premises with a seven-day notice. SRMB was ordered to pay the Claimant Rs. 58,50,45,169/- plus interest at 7% per annum from February 2015 until the award date. SRMB's counterclaims were rejected. SRMB, aggrieved by the arbitral award, filed the present application challenging the award under Section 34 of the Arbitration and Conciliation Act, 1996. Arguments By the Counsel appearing for the Petitioner/SRMB The Tribunal erred in concluding that the correspondence between April 22, 2014, and May 29, 2014, did not result in an agreement to waive the MGO Clause. The correspondence from April 24, 2014, was an offer to waive the MGO Clause upon a price increase. The May 29, 2014 letter from SRMB was an acceptance, thus forming a concluded contract. The Tribunal's treatment of SRMB's response as a counter-offer is perverse and constitutes a patent illegality.The Tribunal incorrectly found the termination notice dated July 7, 2014, wrongful. SRMB was entitled to terminate under Section 39 of the Indian Contract Act due to the claimant's refusal to perform its obligations.The Tribunal's award of Rs. 58,50,45,169/- in damages is not based on any evidence of loss or damage suffered by the claimant. The agreement dated May 11, 2011, is vitiated by fraud and misrepresentation for suppressing Show-Cause Notices and court orders, and laying the pipeline in violation of these orders constitutes fraud, making the agreement voidable. Reliance was placed on Venture Global Engineering vs. Satyam Computer Services Limited [(2010) 8 SCC 660] to support the contention. By the Counsel appearing for the Claimant/Respondent The scope of interference under Section 34 of the 1996 Act is limited to specific grounds. The court cannot sit in appeal over the Arbitral Tribunal's decision, especially if there is no patent illegality, and reappreciation of evidence is not permitted. The Counsel placed reliance on Ssangyong Engg. & Construction Co. Ltd. vs. NHAI [(2019) 15 SCC 131] and Govt. of NCT of Delhi vs. Shonk Technologies International Ltd. [2023 SCC OnLine Del 8323].The Tribunal's findings were within the pleadings. The allegation of modification/novation of the MGO Clause was duly dealt with in the claimant's rejoinder. The Tribunal correctly concluded that the MGO Clause was not waived.The termination by SRMB was in breach of the Gas Purchase Agreement as none of the contractual grounds for termination occurred. SRMB's failure to renew the required bank guarantee resulted in a notice of discontinuance of gas supply issued by the claimant. This suspension did not constitute a breach that would justify termination of the contract under Section 39 of the Contract Act. The Tribunal had correctly observed that the suspension of gas for three days with prior notice in the event SRMB does not renew the bank guarantee does not go to the root of the contract.The agreement between the claimant and SRMB was valid and subsisting until April 30, 2034. SRMB wrongfully terminated the agreement, which constituted a breach. The claimant was entitled to recover damages for the loss it would have incurred had the contract ...

The Court Can't Re-Appreciate Evidence Or Re-interpret Contracts While Examining Patent Illegality : Calcutta High Court

Tazeen Ahmed

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