The Gujarat High Court has dismissed an appeal filed by Petronas LNG Ltd. (formerly Asean LNG Trading Co. Ltd.), affirming a Single Judge’s decision refusing enforcement of a foreign arbitral award under Section 48 of the Arbitration and Conciliation Act, 1996.
The dispute arose out of a Master LNG Sale and Purchase Agreement executed in 2006 between the Malaysian seller and the Indian buyer, concerning the supply of four LNG cargoes in 2007. Following an LCIA arbitration in London, the arbitral tribunal held the buyer liable under the contractual ‘Take or Pay’ clause. The seller subsequently sought enforcement of the award in India.
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The Division Bench comprising of Chief Justice Mrs. Justice Sunita Agarwal and Justice D.N. Ray, however, held that the enforcement court had correctly exercised its limited jurisdiction under Section 48. The Court found that the parties had never reached a concluded contract on essential commercial terms, including the LNG price and the receiving terminal. The Court also observed that these were fundamental elements of the bargain and remained unresolved throughout the negotiations. The delivery notices relied upon by the seller were unilateral, unsigned by the buyer, and could not substitute mutual agreement.
The Bench further noted that correspondence between the parties demonstrated continuing negotiations on pricing and payment security, while the buyer had also informed the seller that regasification slots at both Hazira and Dahej terminals were unavailable. In these circumstances, the Court held that the contractual ‘Take or Pay’ obligation could not have been triggered.
While reiterating that Indian courts cannot re-appreciate evidence or sit in appeal over a foreign arbitral award at the enforcement stage, the Court observed that Section 48 permits refusal of enforcement where the award is contrary to the fundamental policy of Indian law. It held that enforcing an award founded on a non-existent concluded contract would offend fundamental principles of Indian contract law and amount to enforcing a liability that never legally arose.
Holding that the arbitral tribunal’s conclusion that a binding contract existed and that the ‘Take or Pay’ clause had been triggered was perverse, irrational, and contrary to the fundamental policy of Indian law, the High Court concluded that the Single Judge had rightly refused enforcement of the foreign award.
The appeal was accordingly dismissed, with no order as to costs.
