Section 36(3) Decoded – Calcutta High Court Rejects Unconditional Stay Amid Fraud Allegations

CASE NAME:

SRMB Srijan Limited vs. Great Eastern Energy Corporation Limited

CASE DATE:

29th February, 2024

PARTIES:-

Petitioner: SRMB Srijan Limited

Respondent: Great Eastern Energy Corporation Limited

JUDGE/BENCH:

Justice Moushami Bhattacharya

IMPORTANT PROVISIONS:-

Section 36(3) of The Arbitration and Conciliation Act, 1996:-

Pertains to the unconditional stay of an award pending disposal of a challenge, specifically in cases where the arbitration agreement or contract was induced or affected by fraud.

Section 19 of The Contract Act, 1872:- 

Defines fraud and outlines the circumstances under which a contract can be treated as voidable, including the requirement for consent obtained by coercion, fraud or misrepresentation.

SUBJECT:-

The petitioner seeks an unconditional stay on an Arbitral Award dated 21.6.2022, alleging fraud in the Arbitration Agreement due to the respondent's non-disclosure of PNGRB and Delhi High Court orders. The respondent denies any violation and asserts public accessibility of the orders. The court examines whether there was restraint on the respondent during the Gas Supply and Purchase Agreement execution. The petitioner's awareness of the orders is questioned and the court dismisses the fraud claim, emphasizing the absence of a prima facie case.

OVERVIEW:-

The petitioner, seeking an unconditional stay of an Arbitral Award dated 21.6.2022, alleges fraud in the Arbitration Agreement. The respondent invoked arbitration proceedings after the petitioner terminated the Gas Supply and Purchase Agreement (GSPA), resulting in an Arbitral Tribunal awarding Rs. 58,50,45,169/- along with damages. The petitioner claims fraud, asserting non-disclosure of PNGRB and Delhi High Court orders by the respondent. However, the respondent argues that orders were publicly available and disclosed in financial statements. The court examines whether there was restraint on the respondent during GSPA execution and if there was fraudulent inducement.

ISSUES RAISED BEFORE THE COURT:-

1. Whether the Gas Supply and Purchase Agreement termination was wrongful?
2. Whether the respondent committed fraud by not disclosing show-cause notices and allegedly violating orders of the PNGRB and the Delhi High Court?

CONTENTIONS RAISED ON BEHALF OF THE PETITIONER:-

• The learned counsel for the petitioner argued that the Gas Supply and Purchase Agreement termination by the petitioner was wrongful, and they seek an unconditional stay on the resulting Arbitral Award.
• The petitioner contended that non-disclosure of show-cause notices and violation of orders from the PNGRB and the Delhi High Court induced the petitioner into the GSPA.
• The counsel asserted that the Arbitration Agreement was tainted by fraudulent misrepresentation.

CONTENTIONS RAISED ON BEHALF OF THE RESPONDENT:-

• The learned counsel for the respondent asserted that the Gas Supply and Purchase Agreement termination was justified and not wrongful.
•  The respondents argued that orders from the PNGRB and the Delhi High Court were publicly accessible and disclosed in the respondent's financial statements.
• The counsel contended that the petitioner had access to relevant information and that the respondent acted transparently regarding the orders and legal proceedings.

ANALYSIS BY COURT:-

• The court observed that there was no restraint on the respondent at any point in time to perform the Gas Supply and Purchase Agreement or continue its obligations, as indicated by a series of orders from the PNGRB and the Delhi High Court.
• As evidenced by their access to the information disclosed in the respondent's financial statements, which were publicly available on the respondent's website, the court found that the petitioner was aware of the orders from the PNGRB and the Delhi High Court,
• The court highlighted that the petitioner's claim of fraud lacked a prima facie case, emphasizing the absence of evident wrongdoing or deception on the part of the respondent.
• The court observed that the petitioner's primary intention in filing the application for an unconditional stay was to avoid making a deposit for securing the award.

JUDGMENT:-

The court dismissed the current application, rejecting the petitioner's plea for an unconditional stay on the Arbitral Award. The court directed the petitioner to secure Rs. 70 crores within 5 weeks. This amount, 50% (Rs. 35 crores), is to be deposited by way of a bank guarantee and the remaining 50% is to be deposited in cash with the Registrar, Original Side of the court. The Registrar will invest the cash component in an interest-bearing account with a nationalized bank. The petitioner has until 2.4.2024 to comply with these directives. If the petitioner defaults, the respondent is at liberty to execute the award from 3.4.2024.

CONCLUSION:-

The court concluded that the petitioner's plea for an unconditional stay on the Arbitral Award was not justified. The court emphasized the lack of a prima facie case of fraud and directed the petitioner to secure Rs. 70 crores within a specified timeframe, with details on the allocation of this amount. The court's decision reflects a careful examination of the fraud allegations, the petitioner's awareness of relevant orders and the overall circumstances surrounding the case.