2024 (2) TMI 1404 - HC - Indian Laws

Petitioner fails to prove fraud in arbitration agreement, unconditional stay of Rs 58 crore award rejected

The Calcutta HC rejected petitioner's application for unconditional stay of an arbitral award worth Rs. 58,50,45,169/- plus interest. Petitioner claimed ... Seeking unconditional stay of an Arbitral Award - proviso to section 36(3) of The Arbitration and Conciliation Act, 1996 - petitioner prays for unconditional stay on the ground that the Arbitration Agreement was induced by fraud - HELD THAT:- In the present case, the petitioner seeks to make out a case of fraud on the part of the respondent on account of the respondent's alleged non-disclosure of the orders passed by the PNGRB ad the Delhi High Court at the relevant point of time. The presumption is that the petitioner would not have entered into the agreement with the respondent had the respondent disclosed these orders. The case argued is that the petitioner was induced into executing the Arbitration Agreement/GSPA with the respondent on the fraudulent misrepresentation that the respondent was free to supply CBM gas to the petitioner for 25 years. The series of orders passed by the PNGRB and the Delhi High Court shows that first, there was, in fact, no restraint on the respondent at any point of time, material or otherwise, to perform or continue to perform the Agreement in the terms thereof. Second, the petitioner was all along aware of the orders of the PNGRB and the Delhi High Court from 2010-11 onwards as would appear from the respondent's Balance Sheets for relevant years. Even if it is assumed that the petitioner/ or its witness did not check the particular pages in the Balance Sheets disclosing the orders, such oversight would fall within the exception to section 19 of the Contract Act which sets the standard to 'ordinary diligence' of the party who complains, that the truth could easily have been discovered - the petitioner has made vague and omnibus allegations without any particulars of the fraud committed on the part of the respondent. It is evident from the records that the petitioner's only intention for filing the present application is to avoid making any deposit for securing the award. This would also be clear from the prayer in the application GA 1 of 2022. The respondent/award-holder has been deprived of the fruits despite the award being of 21.6.2022. The Court, hence, sees no impediment for the respondent to execute the award unless the petitioner secures the award on appropriate terms - The awarded amount was Rs. 58,50,45,169/-along with interest as on 21.6.2022. The accrued interest and the amount payable along with principal sum as on 13.9.2022 is approximately Rs. 89.71 crores. The respondent has calculated the outstanding amount of Rs. 101,39,93,149/-till 23.2.2024. Since the Court has recorded its lack of satisfaction on the prima facie case made out by the petitioner/award-debtor on the Arbitration Agreement being induced/effected by fraud, the prayer for unconditional stay of the award is rejected. Application dismissed. Issues Involved:1. Unconditional stay of an Arbitral Award.2. Allegation of the Arbitration Agreement being induced by fraud.3. Compliance with orders from the Petroleum and Natural Gas Regulatory Board (PNGRB) and the Delhi High Court.4. Prima facie case for fraud under the second proviso to section 36(3) of The Arbitration and Conciliation Act, 1996.5. Requirement for securing the awarded amount.Detailed Analysis:Unconditional Stay of an Arbitral Award:The petitioner/award-debtor sought an unconditional stay of an Arbitral Award dated 21.6.2022 under the second proviso to section 36(3) of The Arbitration and Conciliation Act, 1996. The respondent invoked arbitration following the petitioner's contract termination, seeking specific performance and damages. The Arbitral Tribunal found the termination wrongful and awarded Rs. 58,50,45,169/- to the respondent, who now claims Rs. 101,39,93,149/- as the outstanding amount.Allegation of the Arbitration Agreement Being Induced by Fraud:The petitioner argued that the Arbitration Agreement was induced by fraud, asserting that the Agreement was executed in violation of orders from the PNGRB and the Delhi High Court. The petitioner claimed that the respondent failed to disclose critical show-cause notices, thereby fraudulently inducing the petitioner into the GSPA.Compliance with Orders from PNGRB and the Delhi High Court:The respondent countered that there was no violation of PNGRB or Delhi High Court orders and no fraud. The orders were publicly available on the respondent's website and disclosed in their Balance Sheets, which were accessible to the petitioner. The court found that the orders did not restrain the respondent from supplying CBM gas or performing the Agreement. The petitioner was aware of these orders, as evidenced by the reliance on the respondent's Balance Sheets during arbitration.Prima Facie Case for Fraud Under the Second Proviso to Section 36(3) of The Arbitration and Conciliation Act, 1996:The court examined whether a prima facie case of fraud existed. Section 17 of The Contract Act, 1872 defines fraud and includes active concealment of facts. The court found no evidence of deliberate non-disclosure by the respondent. The orders were in the public domain and part of the respondent's financial disclosures. The petitioner's claim of fraud did not meet the threshold required for an unconditional stay of the award.Requirement for Securing the Awarded Amount:The court directed the petitioner to secure Rs. 70 crores, with 50% to be deposited as a Bank guarantee and the remaining 50% as cash to the Registrar, Original Side of the Court. The cash component is to be invested in an interest-bearing account with a nationalized bank. The petitioner must comply within five weeks from the judgment date, failing which the respondent may execute the award.Conclusion:The petitioner's argument of the Arbitration Agreement being induced by fraud was rejected. The court found no restraint on the respondent from performing the Agreement and noted that the petitioner was aware of the relevant orders. The petitioner's application for an unconditional stay of the award was dismissed, and the petitioner was directed to secure the awarded amount on specified terms.Final Orders:- GA 1 of 2022 in AP 883 of 2022 is dismissed.- The petitioner must secure Rs. 70 crores within five weeks, half as a Bank guarantee and half as cash.- The respondent may execute the award if the petitioner defaults on these directions by 3.4.2024.- Parties may mention AP 883 of 2022 for listing.- Urgent certified copies of the order to be supplied upon fulfillment of requisite formalities.