The Delhi High Court recently held that arbitration chosen by consent between parties cannot be overridden by post-facto civil suits based on rediscovered facts [MMTC Limited v Anglo-American Metallurgical Pty Limited and Ors]. 

Justice Jasmeet Singh observed that the courts must be vigilant and strike down clever drafting that attempts to circumvent statutory restrictions.

“If such suits are permitted, then it would open a floodgate of litigation, undermining the core objectives of the 1996 Act [Arbitration and Conciliation Act, 1996] which are finality and efficiency. Arbitration, chosen by consent, cannot be overridden by post-facto civil suits on allegedly rediscovered facts otherwise arbitration will turn into a never-ending cycle of challenges,” the Court said.

It made the observation while rejecting a civil suit filed by Metals and Minerals Trading Corporation of India (MMTC), a Central government Public Sector Undertaking (PSU), seeking to set aside an arbitral award which had already been upheld by the Supreme Court.

The Court took exception to the suit filed by MMTC and said it was an abuse of the process of law.

"Filing of the present suit by the plaintiff herein is a classic case of abuse of the process of law. Having exhausted all the remedies as available under the law, the present suit has been filed seeking to relitigate the issues already adjudicated upon by the arbitral tribunal in the arbitral award which has been upheld by the Hon‟ble Supreme Court," the Court stated.

It further said that Section 34 of the Arbitration and Conciliation Act of 1996 clearly specifies that an arbitral award can only be set aside on the grounds mentioned and no challenge can be launched outside of those grounds.  

“This means that section 34 of the 1996 Act offers an exhaustive and exclusive remedy to contest an arbitral award,” the Court underscored. 

MMTC moved the High Court seeking a declaration that an addendum to its long-term agreement (LTA) with an Australian mining company named Anglo American Metallurgical Coal Pty Ltd (AAMC) was obtained by fraud and was void ab initio. 

By way of background, the two companies had entered into an LTA on March 7, 2007 for the supply of hard coking coal. The LTA was subsequently extended through an addendum (referred to as addendum 2) for further delivery of 4.66 lakh MT of coal between July 1, 2008 to June 30, 2009 at a fixed price of US$ 300 per MT.

When MMTC failed to make the purchases at the said price, AAMC invoked arbitration and secured an award on May 12, 2014 from the International Chamber of Commerce of International Court of Arbitration for damages on account of the alleged non-lifting of 4.54 lakh MT of the 4.66 lakh MT. 

The award was upheld by the Supreme Court on December 17, 2020. The review petition against the judgment as well as the application seeking clarification were also dismissed by the top court. 

Before the High Court, MMTC argued that addendum 2 was a result of conspiracy, collusion and fraud between its officials and those of AAMC. It was stated that due to the global financial crisis of 2008, the price of coal dropped significantly and yet the PSU signed a deal to purchase it at US$ 300 per MT, over three times the price it was procuring coal under the previous agreement. 

MMTC said that alleged conspiracy was discovered in 2022 and caused a loss of nearly ₹1,000 crores to the exchequer. It said that a complaint has been made to the CBI, and the agency is investigating the matter. 

Therefore, it argued that since the seeds of the relationship between the two companies with respect to addendum 2 are affected by fraud, the agreement and the arbitral proceedings should be declared void ab initio. 

The Court rejected the contention and held that MMTC’s suit was an abuse of the process of law. 

It reasoned that even though MMTC framed the suit as seeking declaration, recovery of money and a permanent injunction, in essence, it made a collateral challenge to the arbitral award which had already attained finality. 

If the present suit is allowed, then no arbitral award will ever be executed, even after being upheld by the Supreme Court, Justice Singh said. 

Therefore, the High Court rejected the suit.

“For the foregoing reasons, the prayers already quoted above are not maintainable in view of section 5 read with section 34 of 1996 Act. Hence, the plaint filed by the plaintiff stands rejected by exercising powers under Order VII Rule 11 of CPC,” the Court ordered. 

Senior Advocates Harish Salve and Sanat Kumar along with advocates Akhil Sachar and Sunanda Tulsyan appeared for MMTC. 

Senior Advocate Jayant Mehta with advocates Sumeet Kachwaha, Samar Kachwaha, Ankit Khushu, Akanksha Mohan and Pratyush Khanna represented the Anglo American Metallurgical Coal Pty Ltd. 

MMTC’s former employees were represented by Senior Advocate Shyel Trehan as well as advocates Sumeet Kaul, Himanshu and Vidhi Jain. 

[Read Judgment]