2063 Crore Arbitral Award: Calcutta High Court Directs West Bengal Government, WBIDC To Pay Amount

Further, it noted that the arbitral tribunal recorded all the submissions of the parties in the award. Therefore, the bench dismissed the Section 34 petition.

The bench directed the West Bengal Government and West Bengal Industrial Development Corporation to deposit 100% of the awarded sum.

Brief Facts:

A promise was made jointly and severally by the Government of West Bengal (“GoWB”)and West Bengal Industrial Development Limited (“WBIDC”) to Essex Development Investments (Mauritius) Limited (“Essex”) to pay to HPL certain financial benefits/incentives by way of a contract being a Share Purchase Agreement dated September 11, 2014 (“SPA”). The Promisee Essex is a Mauritius-based company and a part of The Chatterjee Group (“TCG”).

HPL originally been granted certain incentives under the West Bengal Incentive Scheme, 1999 (“WBIS”) which expired in May 2012 without HPL being able to utilize Rs. 4380.62 crore worth of incentives due to its poor performance under the management and control of the GoWB and WBIDC.

In acceptance of the offer dated March 1, 2014, made by TCG to take over management control of HPL in order to revive its business by purchasing certain shares of HPL owned by WBIDC, the SPA was executed in public interest whereunder the financial benefit was quantified at Rs. 3285.47 crores (75% of the expired unutilized incentives under WBIS).

With the introduction of the Goods and Services Tax (“GST”) regime on and from July 1, 2017, payment of incentives was stopped even though Clause 11.1(d) read with Schedule 5 of the SPA clearly stated that even after the introduction of GST, the incentives would continue to be paid to the extent the GST component would accrue to GoWB. This would mean the State GST (“SGST”)component which accrues solely to GoWB.

Accordingly, GoWB and WBIDC jointly and severally were contractually bound to continue to pay incentives, the amount of which would be arrived at by calculating the SGST paid by HPL to GoWB. This was not a tax incentive or refund of GST but a reference was made to the SGST amount merely to compute the amount of incentive payable to HPL every quarter.

In light of the refusal of GoWB/WBIDC to pay the contractual incentives under SPA to HPL, Essex (a TCG Company) being the promisee, commenced arbitral proceedings under the Arbitration and Conciliation Act, 1996 as the Claimant against GoWB and WBIDC (as Respondents) for payment of the same.

By an arbitral award dated, a three-member Arbitral Tribunal allowed the claims made by Essex and directed GoWB and WBIDC to continue to pay the financial incentives/benefits to HPL till HPL has received financial incentives/benefits adding up to Rs. 3285.47 crores or till the expiry of the balance remaining period for which the incentives are to be paid.

The arbitral award was challenged by GoWB and WBIDC under Section 34 of the Arbitration Act before the High Court. GoWB and WBIDC also filed an application under Section 36(2) of the Arbitration Act in connection with the Section 34 application for an interim stay of the said arbitral award till the final disposal of the Section 34 application.

Observations by the High Court:

The High Court noted that Chapter VII of the Arbitration and Conciliation Act, 1996 deals with the finality and enforcement of arbitral awards, and Section 36 outlines the process for enforcement. According to Sub-Section (1) of Section 36, an arbitral award can be enforced in the same manner as a decree of a court, provided that the time for making an application to set aside the award under Section 34 has expired. Sub-Section (2) clarifies that an application to set aside the award does not render it unenforceable unless the court grants a stay on the operation of the award.

The High Court noted the amendments introduced by the Arbitration and Conciliation (Amendment) Ordinance, 2020, particularly the proviso added to Sub-Section (3) of Section 36. This proviso mandates that if the court is satisfied that there is a prima facie case of the arbitration agreement or the award being induced by fraud or corruption, it shall stay the award unconditionally pending the challenge under Section 34.

GoWB and WBIDC claimed the impugned award was affected by fraud and argued that the Tribunal disregarded the contract and the parties' intentions. However, the High Court found that they did not allege any fraud or corruption committed by Essex. It noted that the Tribunal considered all materials and submissions and recorded them in the award.

The High Court also examined the provisions of the Share Purchase Agreement, Clause 1(B)(c) of Schedule 5, which contemplated the implementation of GST and adjusted incentives to avoid loss to the State Government. It noted that the government failed to demonstrate any loss or hardship resulting from the GST regime. The Tribunal held that Essex's claim was contractual, based on promised financial assistance under the Share Purchase Agreement, which extended beyond the expiry of the West Bengal Incentive Scheme, 1999.

The High Court held that there can be no estoppel against the legislature in exercising its legislative functions and that the State cannot be prevented from withdrawing an incentive if it is in the public interest.

Therefore, the High Court dismissed the petition and directed GoWB and WBIDC to deposit 100% of the awarded sum by way of transfer (50%) and bank guarantee (50%) within 6 weeks from the date. Essex's claim was for an amount of Rs. 20,63,03,87,848.50/- (inclusive of interest accrued till April 30, 2024).

Case Title: Government of West Bengal & Anr. Versus Essex Development Investments (Mauritius) Ltd.

Case Number: A.P. (COM) 28 of 2023 with IA No. G.A. (COM) 1 of 2024

Essex was represented by Mr. Sudipto Sarkar and Mr. Ratnanko Banerji, Senior Advocates, with Mr. Arunabha Deb, Mr. Deepan Kumar Sarkar, Ms. Ashika Daga, Mr. Samriddha Sen, and Mr. Raunak Das Sharma, Advocates.

GoWB and WBIDC was represented by Mr. Kishore Datta, Ld. Advocate General for the State of West Bengal, Mr. Jishnu Saha, Senior Advocate with Mr. Sidharth Sethi, Mr. R.P. Singh, Mr. Manoj Kumar Tiwary and Ms. Mini Agarwal, Advocates

Click Here To Read/Download Order or Judgment