For Unconditional Stay Of Arbitral Award, Prima Facie Case Of Fraud With Substantial Impact On Outcome On Arbitration Proceedings: Calcutta High Court

Brief Facts:

The Petitioner, who was also the award-debtor, approached the Calcutta High Court (“High Court”) for an unconditional stay of an Arbitral Award under the second proviso to section 36(3) of The Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The Respondent initiated arbitration proceedings after the petitioner terminated the Gas Supply and Purchase Agreement (GSPA), seeking specific performance of the contract and damages. The Arbitral Tribunal ruled the termination of the GSPA as wrongful and illegal, awarding the Respondent a sum of Rs. 58,50,45,169/- along with damages, with the Respondent claiming an outstanding amount of Rs. 101,39,93,149/-.

The Petitioner contended that the Arbitration Agreement was induced by fraud, presenting two arguments. Firstly, it argued that the GSPA was executed in violation of orders by the Petroleum and Natural Gas Regulatory Board (PNGRB) and the Delhi High Court, making any actions taken under it non est. Secondly, the Petitioner alleged fraud and misrepresentation, claiming that the Respondent failed to disclose show-cause notices issued by the PNGRB, thereby inducing the Petitioner into the GSPA, which would be voidable due to fraud.

Observations by the High Court:

The High Court, in considering the Petitioner's request for an unconditional stay of the Arbitral Award under the second proviso to section 36(3) of the Arbitration Act, emphasized the need for a prima facie case of fraud. It highlighted that the statute requires the Court to be satisfied of such a case before granting an unconditional stay. It held that the term "prima facie" indicates that fraud should be evident on the face of the record without the necessity of a detailed investigation. It clarified that fraud encompasses various acts, including deliberate non-disclosure and misrepresentation, as defined under Section 17 of the Contract Act, 1872.

In examining the Petitioner's contentions, particularly regarding the alleged non-disclosure of orders by the PNGRB and the Delhi High Court, the High Court found that there was no evidence to support the claim of inducement into the Arbitration Agreement due to fraudulent misrepresentation. It held that the Respondent's actions were transparent, with relevant information being publicly available, including on their website. Even if the Petitioner or its representatives failed to discover this information, it held that there was a lapse in ordinary diligence rather than deliberate concealment by the Respondent.

Furthermore, the High Court stressed that fraud must be evident and reprehensible, with a substantial impact on the outcome of the arbitration proceedings. The High Court also noted that the Petitioner's allegations lacked specificity and failed to meet the required standard of proof for demonstrating fraud.

Ultimately, the High Court held that the Petitioner's application for an unconditional stay appeared to be motivated by a desire to avoid making any deposit for securing the award rather than genuine concerns regarding fraud. Given the absence of a prima facie case of fraud, the High Court rejected the Petitioner's request for an unconditional stay of the award.

Case Title: SRMB Srijan Limited vs Great Eastern Energy Corporation Limited.

Case Number: IA No: GA 1 of 2022 In A.P.- COM 281 of 2024

Advocate for the Petitioner: Mr. Jishnu Saha, Sr. Adv. Mr. Sakya Sen, Adv. Mr. Arnab Das, Adv. Mr. Amritam Mandal, Adv. Ms. Akansha Yadav, Adv. Ms. Syeda Romana Sultan, Adv.

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

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