Bombay High Court Sets Aside ₹32.79 Crore Arbitral Award To Adani Enterprises In Machhakata Coal Block Dispute

The Bombay High Court on Thursday set aside an arbitral award directing Mahaguj Collieries Ltd to pay about ₹32.79 crore to Adani Enterprises Ltd towards land acquisition expenses incurred for the Machhakata coal block in Odisha.

The court held that the dispute could not have been decided through a summary award.

Justice Somasekhar Sundaresan held that the arbitral tribunal had not analysed the Coal Mining Services Agreement (CMSA) or applied Sections 56 and 65 of the Contract Act to the facts.

The court found that issues such as the parties' contractual arrangement, whether Mahaguj had received any "advantage" and whether the Mine Developer-cum-Operator had suffered any compensable loss required evidence. Those issues could not be decided summarily.

Observing that the tribunal had failed to analyse the contractual provisions or the requirements of the Contract Act before directing payment, the court held:

"Remarkably, the Impugned Award contains no analysis of Sections 56 and 65 of the Contract Act – they are summarily invoked without applying the ingredients of the provisions to the facts of the case. Equally, there is no analysis of the provisions of the CMSA to analyse and indicate the nature of the agreement between the parties, as to how they had contracted to share the risk apportionment between them in the event of the CMSA getting terminated or becoming void."

Mahaguj Collieries, a joint venture of Maharashtra State Power Generation Company Ltd and Gujarat State Electricity Corporation Ltd, had awarded an Adani-led consortium the contract to develop the Machhakata coal block under a Coal Mining Services Agreement executed in May 2010.

The Supreme Court later cancelled more than 200 coal block allocations, including the Machhakata block, in 2014. The Mine Developer-cum-Operator invoked arbitration in November 2016 after contending that the agreement had become impossible to perform.

It sought reimbursement of amounts spent on land acquisition and project development.

On February 1, 2018, the arbitral tribunal passed a partial award directing Mahaguj to pay about ₹32.79 crore towards land acquisition expenses.

While examining the challenge to that award, the court observed that the CMSA did not lend itself to summary adjudication. It held that a proper interpretation of the agreement required evidence to be led. The parties' allocation of risks if the agreement became void also required adjudication before any conclusion could be reached.

The court also upheld the tribunal's finding that it had jurisdiction to decide the dispute. It ruled that Section 27 of the Coal Mines (Special Provisions) Act, 2015 was inapplicable because the dispute was between Mahaguj, an earlier allottee of the coal block, and its Mine Developer-cum-Operator. It was not a dispute between an earlier allottee and a new allottee.

On the question of jurisdiction, the court held,

"Indeed, on this count, I see no reason to find fault with the Learned Arbitral Tribunal inasmuch as Section 27 of the New Coal Act provides for a tribunal under that law to adjudicate disputes between new allottees of the coal blocks and the earlier allottees (such as Mahaguj) whose allocations had been cancelled by the Supreme Court. The dispute in hand being between an earlier allottee (Mahaguj) and the MDO, a third party, it cannot be said that the disputes would have fallen within the jurisdiction of the tribunal created under the New Coal Act."

It then turned to the tribunal's reliance on a November 17, 2014 letter from Mahaguj to the Union Coal Ministry. It noted that the tribunal had treated the letter as an admission warranting a partial award in favour of the Mine Developer-cum-Operator.

The court, however, held that Mahaguj's letter could at best be read as acknowledging expenditure incurred by the Mine Developer-cum-Operator.

However, it did not amount to an admission that Mahaguj had received any "advantage" within the meaning of Section 65 of the Contract Act. Nor did it establish that the Mine Developer-cum-Operator had suffered compensable loss under Section 56.

The court further observed that whether the expenditure translated into an "advantage" received by Mahaguj required evidence.

It also held that whether the Mine Developer-cum-Operator had suffered a compensable loss and, if so, the compensation payable could only be determined after evidence was led and the agreement was properly interpreted. Those issues could not be resolved through a summary partial award.

Accordingly, the court set aside the arbitral award. It clarified that the question of whether the land acquisition expenditure amounted to the Mine Developer-cum-Operator's loss or Mahaguj's advantage remained an arbitrable dispute. The parties were left free to pursue fresh arbitration on the merits.