'Fraud' Has To Be On The Face Of The Record For Granting Unconditional Stay Of An Award: Calcutta HC

The bench of Justice Moushumi Bhattacharya observed: "The second proviso to section 36(3) requires the Court to be satisfied of a prima facie case of the arbitration agreement being vitiated thus. The words “prima facie” as a part of the requirement of the Court’s finding contemplates a finding of fraud on the face of the record, that is to say from a first-blush look of the arbitration agreement or the award. “Prima facie” does not require the Court to delve into the merits of the dispute or unravel the records by way of a detailed consideration. The inducement to the complaining party to enter into the arbitration agreement or the making of the award being tainted by fraud must be plain and ready to be discovered even without a detailed enquiry into the facts."

In the present case, petitioner/award-debtor seeks unconditional stay of an arbitral award under the second proviso to section 36(3) of The Arbitration and Conciliation Act, 1996, which held the termination of the Gas Supply and the Purchase Agreement (GSPA) to be wrongful and illegal.

Respondent invoked arbitration proceedings after the Petitioner terminated the contract, seeking specific performance of the GSPA and damages.

As per the Counsel for the Petitioner, Sr. Adv. Jishnu Saha, arbitration agreement was executed in violation of the orders passed by the Petroleum and Natural Gas Regulatory Board (PNGRB) and the Delhi High Court.

He further contended that GSPA is vitiated by fraud and misrepresentation as the respondent/award-holder deliberately failed to disclose show-cause notices which were issued to the respondent to stop any incremental activity with immediate effect till the matter was decided by the PNGRB. Hence, Petitioner was fraudulently induced to enter into GSPA.

After placing relevant facts, the Counsel for the Respondents, Sr. Adv. Ratnanko Banerji, denied that there was any violation of the PNGRB or the Delhi High Court orders or fraud in the form of suppression or otherwise on the part of the respondent.

He contended that the witnesses of the Petitioner had himself relied upon the respondent’s balance sheets for the relevant financial years which disclosed the orders passed by PNGRB and the Delhi High Court. He also submitted that the orders were in the public domain i.e on the website of the respondent.

The High Court, after going through the records noted that there was no restraint on the respondent, at any point of time, either by PNGRB or by the Delhi High Court, to stop supply of CBM (Coal Bed Methane) to its customers or remove CBM supply lines for performing the respondent’s contractual obligations.

Single bench noted that the petitioner/award-debtor was aware of and had knowledge of the orders. It further emphasised that Petitioner’s knowledge would be relevant since the petitioner mounts its argument on fraud and suppression / lack of disclosure on the part of the respondent.

While rejecting the Petitioner’s argument that the Arbitration Agreement was induced or effected by fraud, Court observed, “For a contract to be treated as voidable at the option of one of the parties to the contract, it must be shown that the consent to the agreement was obtained by coercion, fraud or misrepresentation. The exception to section 19 of The Contract Act, 1872 would apply where the party alleging fraud had the means of discovering the truth with ordinary diligence. Since the orders of the Delhi High Court and the PNGRB were in the public domain and were also disclosed by the respondent in its Balance Sheets and the petitioner had itself relied on through its witness, the case of the petitioner would fall (also as in collapse) within the exception to section 19 of the Contract Act, 1872.”

As per the Court, proviso to Section 36(3) requires the Court to be satisfied of a prima facie case of the arbitration agreement being vitiated.

Finally, the Court recorded its lack of satisfaction on the prima facie case made out by the Petitioner/award-debtor on the Arbitration Agreement being induced / affected by fraud, it rejected the prayer for unconditional stay of the award.

Cause Title: SRMB Srijan Limited v. Great Eastern Energy Corporation Limited

Appearance:

Appellant: Sr. Adv. Jishnu Saha, Adv. Sakya Sen, Adv. Arnab Das, Adv. Amritam Mandal, Adv. Akansha Yadav, Adv. Syeda Romana Sultan

Respondent:  Sr. Adv. Ratnanko Banerji, Adv. Sarvapriya Mukherjee, Adv. Kanishk Kejriwal, Adv. Shounak Mitra, Adv. Kaushik Chakravortty