Delhi High Court: While determining the maintainability of a civil suit for declaration of an arbitral award a nullity, the Single Judge Bench of Jasmeet Singh, J., opined that a challenge against an arbitral award is sustainable only within the confines of Section 34 of the Arbitration and Conciliation Act, 1996 (the Act) and a civil suit seeking declaration of the award as void ab initio cannot be allowed.
Background
The plaintiff is a Public Sector Enterprise engaged in the business of import and export of mineral ores and essential metals whereas Defendant 1 is an international supplier of coking coal. In 2007, the plaintiff and Defendant 1 entered into a Long-Term Agreement (LTA) for the supply of hard coking coal. In 2008, the LTA was extended to cover a fifth delivery period and Addendum 2 was executed which stipulated a fixed price of USD 300 per MT for 466,000 MT of coal.
The plaintiff had alleged that the price of USD 300 per MT was arbitrarily and fraudulently determined through collusion between plaintiff’s key managerial personnel, Defendants 4 to 7, and representatives of Defendant 1, namely Defendants 2 and 3. The officials of plaintiff, despite being fully aware that the price of coking coal had drastically fallen owing to the 2008 economic crash, had proceeded to execute the Addendum 2.
On said price, when the plaintiff was unable to make purchases, Defendant 1 invoked the arbitration clause of the LTA and obtained an arbitral award dated 12-5-2014 against the plaintiff for damages on account of non-lifting of coking coal by the plaintiff and Defendant 1 was held to be entitled to recover damages to the tune of approximately Rs. 716 crores with interest at the rate of 15 per cent on the principal sum from the date of the award until payment. The award had been upheld by the Supreme Court vide order dated 17-12-2020.
The plaintiff averred that the submits that the cause of action to file the present suit arose when after examining the entire material available and discovered, a decision was taken to refer the matter to the CBI vide memorandum dated 16-8-2022. The petitioners further contended that the plea of fraud was never taken by the plaintiff before the arbitral tribunal or in the objections under Sections 34 and 37 since the arbitrator becomes functus officio once the award is signed and no recourse can be made before the arbitral tribunal.
Per contra, Defendant 1 contended that the plaintiff had sought nullification of the arbitral award by way of a commercial suit which was barred by Sections 5 and 34 of the Act. Defendants 4 to 7 averred that the plaint was barred by limitation since the act of submitting a complaint with CBI could not give rise to a fresh cause of action.
The issue before the Court was whether a civil suit to nullify an arbitral award that has attained finality as per the Act, can be maintainable?
Analysis, Law and Decision
The Court noted that the instant plaint had been instituted under Order VII Rule 11 of the Civil Procedure Code, 1908 (CPC) under which the Court is only required to see if a cause of action is not disclosed or the suit is barred by any law and if the answer is in affirmative, then the Court must put an end to the sham litigation so further judicial time is not wasted.
According to the plaintiff, the fraud came to light only in 2022 upon internal investigation and a subsequent CBI reference, however, the Court observed that Section 34 of the Act already includes ‘award induced or affected by corruption or fraud’ as a ground for challenge which the plaintiff failed to raise timely. The Court further stated that alleged new discovery or a mere filing of complaint would not revive a dormant claim and held the instant suit to be ‘hopelessly time barred’.
With regards to the bar under Sections 5 and 34 of the Act, the Court noted that Section 5 contains a non-obstante clause that provides that notwithstanding anything contained in any other law, no judicial authority shall intervene except where so provided under Part I. This implies that provisions of Part I, particularly Section 34 shall be given full effect irrespective of any other law in force. Furthermore, Section 34 specifies that the arbitral award can ‘only’ be set aside by an application in accordance with Section 34 (2) and (3). By using the word ‘only’ twice, Section 34 makes it clear that no challenge to an award can be launched outside its confines and beyond the grounds specified therein. This implies that Section 34 offers an exhaustive and exclusive remedy to contest an arbitral award.
The Court further noted that Section 9 of the CPC clearly states that the civil courts shall try all suits except the suits which are expressly and impliedly barred. Section 5 read with Section 34 of the Act constitutes such a bar to challenge an arbitral award by way of filing a suit which is supposed to be done in the present case. The non-obstante clause of Section 5 makes it amply clear that the civil court cannot entertain suits relating to matters governed by the Act unless specifically permitted.
The Court also observed that a challenge against an arbitral award that has already been upheld by the Supreme Court by way of a commercial civil suit, is not only an abuse of law but would be a travesty of justice and would undermine public confidence in arbitration.
Therefore, the plaint was held to be not maintainable and was rejected by the Court.
[MMTC Ltd. v. Anglo-American Metallurgical Pty. Ltd., CS (Comm.) No. 959 of 2024, decided on 29-7-2025]
Advocates who appeared in this case :
For the petitioner: Senior Advocate Harish Salve, Senior Advocate Sanat Kumar, Advocates Sunanda Tulsyan and Akhil Sachar
For the defendants: Senior Advocate Jayant Mehta, Senior Advocate Shyel Trehan, Advocates Sumeet Kachwaha, Samar Kachwaha, Ankit Khushu, Akanksha Mohan, Pratyush Khanna, Sumeet Kaul, and Himanshu
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