Supreme Court: Internal Fraud Allegations Can’t Reopen Final Arbitration Award

The dispute arose from a Long Term Agreement (LTA) dated 07.03.2007 between MMTC Limited and Anglo American Metallurgical Coal Pvt. Ltd. (Anglo) for the supply of coking coal. Under the contract, MMTC had an option to extend the duration for two more years, which it exercised on 30.01.2007. The fifth delivery period (2008-09) was fixed at US$300 per metric ton, consistent with prices settled by the Empowered Joint Committee (EJC) for SAIL and RINL. However, due to the Lehman Brothers collapse in September 2008 and the resultant market crash, MMTC failed to lift the contracted quantity, leading to arbitration.

By an Award dated 12.05.2014, the arbitral tribunal directed MMTC to pay US$78.72 million with interest. The Award was upheld by the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, and ultimately restored by the Supreme Court on 17.12.2020. MMTC later sought to reopen enforcement proceedings under Section 47 CPC, alleging that its officials had colluded with Anglo officials in fixing inflated coal prices, constituting fraud and breach of fiduciary duty. MMTC also claimed that a CBI inquiry had been initiated into the matter.

HC Held: The High Court dismissed MMTC’s objections and permitted Anglo to withdraw the deposited amount. Aggrieved, MMTC appealed to the Supreme Court, contending that the arbitral award was a nullity and therefore inexecutable under Section 47 CPC, as the contract was tainted by fraud and corruption involving its former officers.

Issue raised: Whether the objections under Section 47 of the Code of Civil Procedure were maintainable to resist execution of an arbitral award, particularly on grounds of alleged fraud and breach of fiduciary duty by officials of the judgment-debtor corporation.

SC Says: The Court dismissed MMTC’s appeal, affirming the High Court’s decision. The Court held that the scope of objections under Section 47 CPC is extremely narrow and confined to decrees that are jurisdictionally void or inherently null, not those merely alleged to be vitiated by internal fraud. Citing Electrosteel Steel Ltd. v. ISPAT Carrier Pvt. Ltd., the Bench reiterated that an executing court cannot re-open or review an arbitral award confirmed by the Supreme Court under the Arbitration and Conciliation Act.

The Court found no prima facie material to show that MMTC’s officers acted dishonestly or outside the “range of reasonableness.” Applying the Business Judgment Rule, it ruled that the pricing and contractual decisions taken by MMTC’s directors fell within legitimate commercial discretion and could not retroactively be deemed fraudulent. The Court also observed that the arbitration and related court proceedings spanned over fifteen years and were contested at all levels, leaving no room for re-litigation under the guise of discovery of fraud.

Thus, the Court upheld the enforceability of the arbitral award, emphasizing that Section 47 cannot be misused to delay execution or reintroduce issues already settled in arbitration and earlier judicial proceedings. The pending CBI investigation, or FIR, it held, did not render the award inexecutable. The appeal was thus dismissed.

To read the full judgment, download the PDF given below.