The Calcutta High Court has held that, although a mining contract entered into by a prior allottee with a third party became void once the Supreme Court declared the underlying coal block allotment illegal, an arbitral award granting limited restitutionary reliefs against the prior allottee could still be sustained where the arbitrator took the view that Sections 11(2) and 14 of the Coal Mines (Special Provisions) Act, 2015 preserved the third party’s remedy against the prior allottee and shifted relevant liabilities to the prior allottee personally. Such an interpretation was held to be at least a plausible view and therefore immune from interference under Section 34 of the Arbitration and Conciliation Act, 1996.
The Court also held that the invalidity or voidness of the underlying contract does not, by itself, extinguish the arbitration clause or the arbitral tribunal’s jurisdiction. By virtue of the doctrine of separability recognised in Section 16 of the Arbitration and Conciliation Act, disputes arising out of such a void contract remain arbitrable, and the arbitrator can determine which claims survive on principles such as restitution and which claims fail as claims for breach damages under a void contract.
A Single Judge Bench of Justice Shampa Sarkar recorded that the arbitral tribunal had held the mining contract between the parties to be void because the subject matter of the contract, mining rights flowing from the Corporation’s allotment, stood vitiated once the Supreme Court held the allotment itself illegal under the Coal Mines (Nationalisation) Act, 1973. Accepting this position, the Single Judge noted that a contract entered into for implementation of an allotment declared illegal was itself void and hit by Section 23 of the Contract Act. The arbitrator had also held that, ordinarily, parties to such a void contract would be remediless for enforcement of the contract and for claims in the nature of damages for breach.
The Bench then examined how the tribunal nevertheless allowed certain claims. It noted that the arbitrator interpreted Sections 11, 12, 13, 14 and 27 of the Coal Mines (Special Provisions) Act, 2015 as showing that Parliament had consciously protected interests of stakeholders other than prior allottees, including third parties who had contracted with prior allottees and secured creditors, by shifting liabilities to prior allottees as personal liabilities and by preserving remedies against them. In particular, the arbitrator read Section 11(2) to mean that where the successful bidder or allottee did not adopt a prior allottee’s existing contracts with third parties, those contracts ceased to be enforceable against the successful bidder or allottee, but the remedy of the contracting third party would lie against the prior allottee. The High Court held that this was a plausible interpretation and not patently illegal.
On jurisdiction, the Bench rejected the Corporation’s argument that once the contract was held void, the arbitrator had no jurisdiction to decide disputes under it. Relying on the doctrine of separability embodied in Section 16(1)(a) and 16(1)(b) of the Arbitration and Conciliation Act, 1996, and referring to later Supreme Court authority, the Bench observed that even if the underlying contract is void, the arbitration clause survives and the arbitral tribunal retains jurisdiction to decide disputes arising out of such contract.
As to the individual claims, the Bench accepted the tribunal’s reasoning that the additional levy imposed after the Supreme Court judgments and reflected in the 2015 Act was the statutory liability of the prior allottee alone and could not be passed on to the claimant under the contractual clause dealing with royalty, cess, taxes and other statutory levies. The tribunal had treated the additional levy as a compensatory impost for illegal mining, distinct from levies arising in the course of lawful mining operations, and therefore directed refund of amounts deducted by the Corporation on that basis. The High Court found this reasoning rational and consistent with Section 14(5) of the 2015 Act.
The Bench also upheld the award of refund of penalty for shortfall in production for FY 2013–14, recording the arbitrator’s finding that the claimant’s inability to meet the target was attributable to the Corporation’s own failure to perform reciprocal obligations such as handing over unencumbered land and obtaining environmental clearance for extraction beyond one million tonnes. Likewise, it upheld the refund of penalty for alleged transit loss because the Corporation had not followed the agreed contractual and tripartite procedure for weighment and measurement, making attribution of liability to the claimant unsustainable.
On mining charges and commission relating to direct coal sales to WBPDCL and DPL, the Bench noted that the tribunal found the Corporation had acted in violation of the contract by selling on terms not contemplated by the agreement and by not securing full advance payments as required. The defence that those entities were government companies and therefore different treatment was permissible was rejected because no such exemption existed in the contract. The Bench accepted the tribunal’s finding that the claimant’s calculations had not been rebutted by evidence and that the dues under these heads were therefore payable.
With respect to land advance, the Bench recorded that the tribunal treated the claim as one for restitution of amounts advanced for land acquisition which remained unadjusted after the mining operations ceased. The tribunal found that the Corporation had admitted substantial liability to refund and had failed to prove any higher repayment than what the claimant acknowledged. It further held that once the agreement became a nullity, there was no basis to continue the contractual adjustment mechanism over 30 years, and the Corporation became liable to refund the unpaid amount with interest from 1 April 2015. The High Court found no infirmity in this reasoning.
At the same time, the Bench emphasised that the tribunal had disallowed claims which depended on treating the contract as wrongfully terminated or on awarding future damages beyond restitution. Claims for loss in mine development, loss of investment in fixed assets and future loss of profit were rejected because the cessation of mining followed from the Supreme Court’s cancellation of the coal block and not from any unlawful termination by the Corporation, and because the 2015 Act did not create any special right in favour of the claimant to recover future loss of profit. The High Court considered these refusals to be consistent with the tribunal’s own view that a party to a void contract remains remediless in relation to claims of that character.
Briefly, two Section 34 petitions arose out of an arbitral award dated 13 June 2019 concerning disputes between West Bengal Mineral Development and Trading Corporation Limited (Corporation), the prior allottee of the Trans Damodar Sector coal block, and Trans Damodar Coal Mining Pvt Ltd. (claimant), which had been engaged by the Corporation under contractual arrangements for coal mining and related operations. The coal block allocation in favour of the Corporation had originally been made by the Ministry of Coal in 2005, and the parties subsequently entered into a mining contract, marketing arrangements, modifications/ addenda, an escrow arrangement and a tripartite freight terminal arrangement.
After the Supreme Court’s decisions in Manohar Lal Sharma declaring the coal block allocations illegal and cancelling them, followed by enactment of the Coal Mines (Special Provisions) Act, 2015, disputes arose regarding refund claims, penalties, mining charges, land advance, escrow amounts, fixed deposits, interest and costs. The arbitral tribunal framed, as its principal issue, whether the claimant’s claims were maintainable in law in light of the Supreme Court decisions and the 2015 Act.
Appearances:
Kishore Datta, AG, and Sanjay Saha, Adv., Chayan Gupta, Adv., Aviroop Mitra, Adv., for West Bengal Mineral Development
Jaydip Kar, Sr. Adv, Manju Bhuteria, Sr. Adv, for the Respondent in AP-COM 171 of 2024
Kumar Gupta, Adv., Meenakshi Manot, Adv., Arundhuti Barman Roy, Adv., Piyush Jain, Adv., for the Petitioner in AP-COM 172 of 2024
