After Supreme Court Coal Block Ruling, Rajasthan High Court Restores Awards In Favour Of Parsa Kente Collieries

The Rajasthan High Court has effectively restored arbitral awards in favour of Parsa Kente Collieries Ltd. in its dispute with Rajasthan Rajya Vidyut Utpadan Nigam Ltd. The dispute concerned reimbursement of additional costs incurred after the Supreme Court's cancellation of coal block allocations and the subsequent continuation of the mining arrangement.

In 2014, the Supreme Court had quashing coal block allocations across India, holding them arbitrary and illegal.

A Division Bench of Acting Chief Justice Sanjeev Prakash Sharma and Justice Bipin Gupta held that the Commercial Court had exceeded the narrow scope of judicial scrutiny over arbitral awards. It said the Commercial Court reassessed evidence and substituted its own interpretation of the contract for that of the arbitrator.

"if we examine the judgement passed by the learned Commercial Court, we find that the learned Commercial Court has examined the award passed by the Arbitrator, as if he was re-examining all the facts and exercising power of an appeal, considering the limited scope available under Section 34 of the Act of 1996 which requires only to see whether the award was induced or affected by fraud or corruption or whether it was in violation of Section 75 or Section 81 of the Act or whether it was in contravention of the fundamental policy of the Indian law or it is in conflict with the most basic notions of morality or justice, that it could be interfered with, is found to be completely absent”

Parsa Kente Collieries Ltd., a joint venture (74% Adani Enterprises, 26% RRVUNL) formed for mining operations in the Parsa East and Kanta Basan coal blocks in Chhattisgarh, entered into a Coal Mining and Delivery Agreement with Rajasthan Rajya Vidyut Utpadan Nigam Ltd. in 2008. A mining lease was granted in 2012, following which mining and coal supply proceeded under the arrangement.

However, after the Supreme Court's 2014 judgment cancelling several coal block allocations nationwide, the mining lease linked to the project also stood cancelled. The parties later executed a supplementary agreement in 2016 to continue operations.

Disputes subsequently arose over reimbursement of additional expenses allegedly incurred by Parsa Kente Collieries Ltd. These included fresh mining lease costs, stamp duty, legal expenses, and land acquisition costs.

Arbitration proceedings culminated in an award dated January 15, 2021, partly allowing several claims. This was followed by an additional award dated July 5, 2021, granting ₹66.70 crore towards land acquisition costs for four villages along with interest.

Rajasthan Rajya Vidyut Utpadan Nigam Ltd. challenged the awards before the Commercial Court in Jaipur. The court set them aside in May 2023 after holding that the arbitrator had wrongly interpreted the agreement's force majeure and change-in-law provisions.

Parsa Kente Collieries Ltd. challenged that order. It argued that the Commercial Court had effectively acted as an appellate forum by reappreciating evidence and substituting its own interpretation, despite the arbitrator's view being a plausible one.

Rajasthan Rajya Vidyut Utpadan Nigam Ltd., on the other hand, contended that the arbitrator had travelled beyond the contractual framework. It also argued that the awards suffered from patent illegality.

Allowing the appeal, the High Court held that the Commercial Court had impermissibly reinterpreted the force majeure clause, particularly the words “adversely and directly”. It said the Commercial Court had not shown that the arbitrator's interpretation was perverse or patently illegal.

It further held that the Commercial Court had extensively reappreciated oral evidence. It said the court had scrutinised the arbitral findings as though it were exercising appellate jurisdiction.

The High Court also relied on the arbitrator's findings that the Supreme Court's cancellation of coal block allocations fundamentally altered the basis of the agreement. It said the cancellation imposed unforeseen one-time capital expenses that were never contemplated when the contract was executed.

The High Court accordingly set aside the Commercial Court's order.

For Appellant (Parsa Kente Collieries Limited): Senior Advocate Vikram Nankani, assisted by Advocates Sandeep Pathak, Abhisaar Bairagi, Milind Sharma, Ausaf Ayyab and Utkarsh Meena.

For Respondent (Rajasthan Rajya Vidyut Utpadan Nigam Limited): Advocates Kartik Seth and Ratakshi Sarvaria.