Calcutta High Court Upholds ₹151 Crore Arbitral Award On Restitution In Coal Block Dispute

The Calcutta High Court on 5 May upheld major portions of an arbitral award of about Rs. 151 crore in favour of Trans Damodar Coal Mining Pvt Ltd in a dispute arising from cancellation of coal block allocation after the Supreme Court's 2014 judgments.

Justice Shampa Sarkar held that even though the mining contract became void after the Supreme Court struck down coal block allocations in 2014, the arbitral tribunal could still grant limited restitutionary relief under the Contract Act and the Coal Mines (Special Provisions) Act, 2015 to prevent unjust enrichment between the parties. She held:

“The Arbitrator rightly held that, if the contract was void, any party who may have taken advantage under such a void contract, should refund the advantage or compensate to the person from whom such advantage was received, under the provision of Contract Act. The decision of the learned Arbitrator was made on the principle of equity, that no one should unjustly enrich himself at another's expense. The principle of restitution would not be applicable if the agreement was void ab initio, and the parties knowingly entered into the illegal or void contract.”

The dispute arose from a 31 May 2006 agreement under which the state corporation appointed Trans Damodar for coal mining in the Trans Damodar sector of the Raniganj coalfields. After the Supreme Court cancelled coal block allocations across the country, mining stopped from 31 March 2015, leading to disputes over deductions such as additional levy, penalties, mining charges, land advances, and escrow amounts.

An arbitral award dated 13 June 2019 partly allowed the contractor's claims, including refund of amounts deducted towards additional levy and penalties, while rejecting claims for future profits and damages. The corporation challenged the award, arguing that once the contract was declared void, no relief could be granted. It also argued that the arbitral tribunal had no jurisdiction after the Supreme Court's ruling.

Rejecting these arguments, the High Court held that the arbitrator had correctly interpreted the 2015 Act and applied restitution principles to prevent unjust enrichment.

On jurisdiction, the Court held that Sections 16(1)(a) and 16(1)(b) of the Arbitration and Conciliation Act follow the doctrine of separability, meaning the arbitration clause survives even if the main contract is void. Therefore, the arbitrator retained jurisdiction to decide the dispute. It observed:

“Moreover, Section 16(1)(a) and 16(1)(b) of the A & C Act recognises the doctrine of separability and even if a contract is void, the arbitration clause survives and the Arbitrator retains the jurisdiction to proceed with the disputes arising out of such void contract. Thus, the argument of the learned Advocate General that, when the contract itself did not subsist on account of the same being declared void, the disputes could not be further decided by the learned Arbitrator as the learned Arbitrator lost his jurisdiction to decide such disputes arising out of a void contract, is not supported by law.”

Accordingly, the Court upheld the major portions of the arbitral award and dismissed the petition.